Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
254) 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 net operating income using the contribution approach for the first quarter is:
A) $270,000
B) $180,000
C) $144,000
D) $66,000
Answer: D
Explanation: Unit sales = $900,000 ÷ $50 per book = 18,000 books
Selling expenses = Fixed selling expenses + ($5 per book × 18,000 books)
$100,000 = Fixed selling expenses + $90,000
Fixed selling expenses = $100,000 − $90,000 = $10,000
Administrative expenses = Fixed administrative expenses + (4% of $900,000)
$104,000 = Fixed administrative expenses + $36,000
Fixed administrative expenses = $104,000 − $36,000 = $68,000
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
Fixed expenses:
Fixed selling
10,000
Fixed administrative
68,000
78,000
Net operating income
$
66,000
Difficulty: 3 Hard
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
255) 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 cost formula for selling and administrative expenses with "X" equal to the number of books sold is:
A) Y = $102,000 + $5X
B) Y = $102,000 + $7X
C) Y = $78,000 + $7X
D) Y = $78,000 + $9X
Answer: C
Explanation: Unit sales = $900,000 ÷ $50 per book = 18,000 books
Selling expenses = Fixed selling expenses + ($5 per book × 18,000 books)
$100,000 = Fixed selling expenses + $90,000
Fixed selling expenses = $100,000 − $90,000 = $10,000
Administrative expenses = Fixed administrative expenses + (0.04 × $900,000)
$104,000 = Fixed administrative expenses + $36,000
Fixed administrative expenses = $104,000 − $36,000 = $68,000