Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
252) 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.
If 25,000 books are sold during the second quarter and this activity is within the relevant range, the company's expected contribution margin would be:
A) $875,000.
B) $300,000.
C) $175,000.
D) $65,000.
Answer: C
Explanation: Unit sales = $800,000 ÷ $40 per book = 20,000 books
Cost per book = $560,000 ÷ 20,000 books = $28 per book
Sales ($40 per book × 25,000 books)
$
1,000,000
Variable expenses:
Cost of goods sold ($28 per book × 25,000 books)
$
700,000
Variable selling ($3 per book × 25,000 books)
75,000
Variable administrative (5% of $1,000,000)
50,000
825,000
Contribution margin
$
175,000
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.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
253) An income statement for Sam's Bookstore for the first quarter of the year is presented below:
Sam's Bookstore
Income Statement
For Quarter Ended March 31
Sales
$
900,000
Cost of goods sold
630,000
Gross margin
270,000
Selling and administrative expenses
Selling
$
100,000
Administration
104,000
204,000
Net operating income
$
66,000
On average, a book sells for $50. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 4% of sales with the remainder being fixed.
The contribution margin for Sam's Bookstore for the first quarter is:
A) $180,000
B) $774,000
C) $144,000
D) $756,000
Answer: C
Explanation: Unit sales = $900,000 ÷ $50 per book = 18,000 books
Sales
$
900,000
Variable expenses:
Cost of goods sold
$
630,000
Variable selling ($5 per book × 18,000 books)
90,000
Variable administrative (4% of $900,000)
36,000
756,000
Contribution margin
$
144,000
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.