An income statement for Sam's Bookstore for the first quarter of the year is presented below: 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 5% of sales with the remainder being fixed. The contribution margin for Sam's Bookstore for the first quarter is:
A) $214,000
B) $826,500
C) $166,500
D) $783,500

Question

An income statement for Sam's Bookstore for the first quarter of the year is presented below:  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 5% of sales with the remainder being fixed. The contribution margin for Sam's Bookstore for the first quarter is:
A) $214,000 
B) $826,500 
C) $166,500 
D) $783,500

Quizplus · Accepted Answer

To determine the contribution margin, we need to first calculate the total sales revenue and total variable expenses.

Total sales revenue = ($50/book) x 16,500 books = $825,000 
Total variable expenses = ($4/book) x 16,500 books + (0.05 x $825,000) = $231,750

Therefore, the contribution margin is:

Contribution margin = Total sales revenue - Total variable expenses 
= $825,000 - $231,750 
= $593,250

Therefore, the best choice is C, with a contribution margin of $166,500 for the first quarter.

An Income Statement for Sam's Bookstore for the First Quarter