Question

An income statement for Tommy's Bookstore for the first quarter of the year is presented below: Tommy's Bookstore Income Statement For Quarter Ended March 31 Sales $ 880,000 Cost of goods sold 540,000 Gross margin 340,000 Selling and administrative expenses Selling $ 115,000 Administration 134,000 249,000 Net operating income $ 91,000 On average, a book sells for $55. Variable selling expenses are $6 per book with the remaining selling expenses being fixed. The variable administrative expenses are 5% of sales with the remainder being fixed. The contribution margin for Tommy's Bookstore for the first quarter is:

Answer 1

Answer:

Contribution margin = $200,000

Explanation:

As per the data given in the question,

Contribution margin = Sales - Variable expense

Number of books = $880,000 ÷ $55

=16,000

Gross margin  = 340,000

Variable selling expenses = 16,000 × $6

=$96,000

Variable administrative expense = $880,000 × 5%

=$44,000

Total = $96,000 + $44,000

= $140,000

Contribution margin = $340,000 - $140,000

= $200,000