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			$	910,000
Cost of goods sold				530,000
Gross margin				380,000
Selling and administrative expenses
Selling	$	113,000
Administration		130,000		243,000
Net operating income			$	137,000

On average, a book sells for $70. Variable selling expenses are $5 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:

Multiple Choice

$380,000

$315,000

$137,000

$287,700

Answer 1

Calculate net operating income using contribution approach :

Sale		910000
Less; Variable cost
Variable cost of goods sold	530000
Variable selling expense (13000*5)	65000
Variable administrative expense (910000*3%)	27300
Total variable cost		622300
Contribution margin		287700
Fixed selling expense (113000-65000)	48000
Fixed administration expense (130000-27300)	102700
Total fixed expense		150700
Net operating income		137000

So answer is c) $137000