Question

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			$	1,000,000
Cost of goods sold				665,000
Gross margin				335,000
Selling and administrative expenses
Selling	$	107,000
Administration		118,000		225,000
Net operating income			$	110,000

On average, a book sells for $50. Variable selling expenses are $4 per book with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales with the remainder being fixed.

The net operating income using the contribution approach for the first quarter is:

Answer 1

Sam's Bookstore
Income Statement
Variable Costing/Contribution approach
Sales	$1,000,000.00
Less: Variable Cost
Direct Variable cost	$   665,000.00
Variable selling Expenses	$     80,000.00
variable Administrative expenses	$     30,000.00
Contribution Margin	$   225,000.00
Less: Fixed Expenses
Fixed Selling Expenses	$     27,000.00
Fixed Administrative expenses	$     88,000.00
Net operating income	$   110,000.00

Net Operating Income Using Contribution Approach will also be $ 110000.

This is Because manufacturing expenses are taken to be same as in absorption costing.