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 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, 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 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

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
Y = ($40,000 + $70,000) + ($3 per book + 0.05 x $40 per book) X
Y = $110,000 + $5X