Question

# An income statement for Sam's Bookstore for the first quarter of the year is presented below:...

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 \$ 880,000 Cost of goods sold 550,000 Gross margin 330,000 Selling and administrative expenses Selling \$ 117,000 Administration 138,000 255,000 Net operating income \$ 75,000

On average, a book sells for \$55. 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:

Y = \$139,800 + \$7.20X

Explanation:

Unit sales = \$880,000 ÷ \$55 per book = 16,000 books

Selling expenses = Fixed selling expenses + (\$5 per book x 16,000 books)

\$117,000 = Fixed selling expenses + \$80,000

Fixed selling expenses = \$117,000 − \$80,000 = \$37,000

\$138,000 = Fixed administrative expenses + \$35,200

Fixed administrative expenses = \$138,000 − \$35,200 = \$102,800

Variable administrative expense per unit = 0.04 x \$55 per book = \$2.20 per book

Y= (\$37,000 + \$102,800) + (\$5 + \$2.20) X

Y = \$139,800 + \$7.20X, where "X" equal to the number of books sold.

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