Schrute Farm Sales buys portable generators for $450 and sells them for $740. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $6000 a month rent for his store, and also pays $1800 a month to his staff in addition to the commissions. Mr. Schrute sold 700 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, what would be his operating income?
A)$169,300
B)$203,000
C)$236,700
D)$518,000

Question

Quizplus · Accepted Answer

Operating income is calculated by subtracting all operating expenses from the gross profit. First, calculate the gross profit: Sales revenue = 700 generators * $740 = $518,000 Cost of goods sold (COGS) = 700 generators * $450 = $315,000 Gross profit = Sales revenue - COGS = $518,000 - $315,000 = $203,000 Then, calculate total operating expenses: Sales commissions = 5% of $518,000 = $25,900 Rent = $6,000 Staff wages = $1,800 Total operating expenses = $25,900 + $6,000 + $1,800 = $33,700 Operating income = Gross profit - Total operating expenses = $203,000 - $33,700 = $169,300

Schrute Farm Sales Buys Portable Generators for $450 and Sells