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			$	990,000
Cost of goods sold				675,000
Gross margin				315,000
Selling and administrative expenses
Selling	$	109,000
Administration		122,000		231,000
Net operating income			$	84,000

On average, a book sells for $60. Variable selling expenses are $6 per book with the remaining selling expenses being fixed. The variable administrative expenses are 5% of sales with the remainder being fixed.

The contribution margin for Sam's Bookstore for the first quarter is:

Multiple Choice

• $841,500

• $216,000

• $166,500

• $823,500

Answer 1

Solution :

Answer : The Answer is (c) $ 166,500

Working :

Contribution Margin = Sales - Variable Exenses

(a) Sales	$ 990,000
Variable Expenses :
(b) Cost of Goods Sold	$ 675,000
(c) Variable Selling Expenses (16,500 * $ 6)	$ 99,000
(d) Variable Administrative Expenses ($ 990,000 * 5%)	$ 49,500
(e) Total Variable Expenses (b + c+ d)	$ 823,500
(f) Contribution Margin (a - e)	$ 166,500

Units Sold = $ 990,000 / $ 60 = 16,500

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