It costs Homer's Manufacturing $0.65 to produce baseballs and Homer sells them for $5.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $17,000 a month rent for his factory and store, and also pays $78,000 a month to his staff in addition to the commissions. Homer sold 70,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his operating income?

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Quizplus · Accepted Answer

Operating income is calculated by subtracting all variable and fixed costs from sales revenue. Here's the calculation:1. Sales Revenue = 70,500 baseballs * $5.00 = $352,5002. Cost of Goods Sold (COGS) = 70,500 baseballs * $0.65 = $45,8253. Gross Margin = Sales Revenue - COGS = $352,500 - $45,825 = $306,6754. Sales Commissions = 5% of Sales Revenue = 0.05 * $352,500 = $17,6255. Total Variable Costs = COGS + Sales Commissions = $45,825 + $17,625 = $63,4506. Contribution Margin = Sales Revenue - Total Variable Costs = $352,500 - $63,450 = $289,0507. Fixed Costs = Rent + Staff Wages = $17,000 + $78,000 = $95,0008. Operating Income = Contribution Margin - Fixed Costs = $289,050 - $95,000 = $194,050

It Costs Homer's Manufacturing $0