Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
250) The University Store, Inc. is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below:
University Store, Inc.
Income Statement
For the Quarter Ended March 31
Sales
$
800,000
Cost of goods sold
560,000
Gross margin
240,000
Selling and administrative expenses
Selling
$
100,000
Administrative
110,000
210,000
Net operating income
$
30,000
On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed.
The net operating income computed using the contribution approach for the first quarter is:
A) $30,000.
B) $180,000.
C) $140,000.
D) $0.
Answer: A
Explanation: Unit sales = $800,000 ÷ $40 per book = 20,000 books
Fixed selling expense = $100,000 − $3 per book × 20,000 books = $40,000
Fixed administrative expense = $110,000 – 0.05 × $800,000 = $70,000
Sales
$
800,000
Variable expenses:
Cost of goods sold
$
560,000
Variable selling ($3 per book × 20,000 books)
60,000
Variable administrative (5% of $800,000)
40,000
660,000
Contribution margin
140,000
Fixed expenses:
Fixed selling
40,000
Fixed administrative
70,000
110,000
Net operating income
$
30,000
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior; Using Different Cost Classifications for Different Purposes
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.; 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
251) The University Store, Inc. is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below:
University Store, Inc.
Income Statement
For the Quarter Ended March 31
Sales
$
800,000
Cost of goods sold
560,000
Gross margin
240,000
Selling and administrative expenses
Selling
$
100,000
Administrative
110,000
210,000
Net operating income
$
30,000
On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed.
The cost formula for selling and administrative expenses with "X" equal to the number of books sold is:
A) Y = $105,000 + $3X
B) Y = $105,000 + $5X
C) Y = $110,000 + $5X
D) Y = $110,000 + $33X
Answer: C
Explanation: Unit sales = $800,000 ÷ $40 per book = 20,000 books
Fixed selling expense = $100,000 − $3 per book × 20,000 books = $40,000
Fixed administrative expense = $110,000 – 0.05 × $800,000 = $70,000
Y = ($40,000 + $70,000) + ($3 per book + 0.05 × $40 per book) X
Y = $110,000 + $5X
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior; Using Different Cost Classifications for Different Purposes
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.; 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.