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			$	900,000
Cost of goods sold				640,000
Gross margin				260,000
Selling and administrative expenses
Selling	$	102,000
Administration		108,000		210,000
Net operating income			$	50,000

On average, a book sells for $60. 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:

Multiple Choice

• $50,000

  Correct
• $185,000
• $260,000
• $149,000

Explanation

Unit sales = $900,000 ÷ $60 per book = 15,000 books

Selling expenses = Fixed selling expenses + ($5 per book × 15,000 books)

$102,000 = Fixed selling expenses + $75,000

Fixed selling expenses = $102,000 − $75,000 = $27,000

Administrative expenses = Fixed administrative expenses + (4% of $900,000)

$108,000 = Fixed administrative expenses + $36,000

Fixed administrative expenses = $108,000 − $36,000 = $72,000

Sales			$	900,000
Variable expenses:
Cost of goods sold	$	640,000
Variable selling ($5 per book × 15,000 books)		75,000
Variable administrative (4% of $900,000)		36,000		751,000
Contribution margin			$	149,000
Fixed expenses:
Fixed selling		27,000
Fixed administrative		72,000		99,000
Net operating income			$	50,000