The Book Rack has two locations, downtown and on campus.During March, the company reported net income of $164,000 and sales of $1.2 million.The contribution margin in the downtown store was $320,000 (32% of sales).The contribution margin in the campus store is $110,000.Direct fixed costs are $90,000 in the downtown store and $93,000 in the campus location.How much are total variable costs?
A)$953,000
B)$770,000
C)$680,000
D)$430,000

Question

Quizplus · Accepted Answer

To calculate the total variable costs, we need to use the contribution margin formula:
Contribution Margin = Sales - Variable Costs

For the downtown store:
$320,000 = 0.32(Sales) - Variable Costs
$1,000,000 = Sales - Variable Costs
Variable Costs = $680,000

For the campus store:
$110,000 = 0.08(Sales) - Variable Costs
$1,100,000 = Sales - Variable Costs
Variable Costs = $770,000

Total variable costs = $680,000 + $770,000 = $1,450,000

Therefore, the best choice is B, as it correctly calculates the total variable costs.

The Book Rack Has Two Locations, Downtown and on Campus