Wendell's Bicycles store buys bicycles on average for $500 and sells them on average for $800. He pays a sales commission of 10% of sales revenue to his sales staff. Wendell pays $1,500 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Wendell sold 100 bicycles in June.
-If Wendell prepares a contribution margin income statement for the month of June, what would be his contribution margin?
A) $80,000
B) $22,000
C) $138,000
D) $58,000

Question

Quizplus · Accepted Answer

Wendell's revenue from selling 100 bicycles can be calculated as follows:
$800 x 100 = $80,000

His cost of goods sold for 100 bicycles can be calculated as follows:
$500 x 100 = $50,000

His total variable costs (sales commission) can be calculated as follows:
10% x $80,000 = $8,000

His total fixed costs (rent + staff salary) can be calculated as follows:
$1,500 + $3,000 = $4,500

His contribution margin can be calculated as follows:
($80,000 - $50,000 - $8,000) = $22,000

Therefore, the correct answer is B, with a contribution margin of $22,000.

Wendell's Bicycles Store Buys Bicycles on Average for $500 and Sells