An Income Statement for Sam's Bookstore for the First Quarter

question 160

Multiple Choice

An income statement for Sam's Bookstore for the first quarter of the year is presented below: On average, a book sells for $50. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 4% of sales with the remainder being fixed.If 20,000 books are sold during the second quarter and this activity is within the relevant range, the company's expected contribution margin would be:

• A) $300,000
• B) $160,000
• C) $860,000
• D) $58,000

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Definitions:

Margin of Safety

The difference between actual sales and the break-even point, measuring the risk of not covering fixed costs.

Pre-tax Income

The amount of income earned by an individual or company before any taxes have been deducted.

Variable Costs

Costs that vary directly with the level of production or service activity, such as raw materials and labor hours.

Expected Total

The projected sum or outcome of a particular set of data or financial transactions over a specified period.