The University Store, Incorporated 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 cost formula for selling and administrative expenses with "X" equal to the number of books sold is:
A) Y = $105,000 + $3X
B) Y = $105,000 + $5X
C) Y = $110,000 + $5X
D) Y = $110,000 + $33X

Question

The University Store, Incorporated 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 cost formula for selling and administrative expenses with "X" equal to the number of books sold is:
A) Y = $105,000 + $3X 
B) Y = $105,000 + $5X 
C) Y = $110,000 + $5X 
D) Y = $110,000 + $33X

Quizplus · Accepted Answer

We know that variable selling expenses are $3.00 per book, so the cost formula for selling expenses will be 3X. The remaining selling expenses are fixed, which means that they will not change with an increase in the number of books sold. Therefore, the cost formula for selling expenses will be a fixed cost of $105,000 plus 3X.

Variable administrative expenses are 5% of sales, and we know that on average, a book sells for $40.00. So, the variable administrative expenses will be 0.05*$40.00*X = $2.00*X. The remainder of the administrative expenses are fixed, so the cost formula for administrative expenses will be a fixed cost of $110,000 plus $2.00*X.

Adding the cost formulas for selling and administrative expenses, we get:

Total costs = (105,000 + 3X) + (110,000 + 2X) = 215,000 + 5X

Therefore, the correct answer is (C) Y = $110,000 + $5X.

The University Store, Incorporated Is the Major Bookseller for Four