The University Store, Inc. is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below: On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed.
The net operating income computed using the contribution approach for the first quarter is:

Question

The University Store, Inc. is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below:  On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed.
The net operating income computed using the contribution approach for the first quarter is:

Quizplus · Accepted Answer

Unit sales = $800,000 ÷ $40 per book = 20,000 books
Fixed selling expense = $100,000 − $3 per book x 20,000 books = $40,000
Fixed administrative expense = $110,000 - 0.05 x $800,000 = $70,000
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