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.
The cost formula for selling and administrative expenses with "X" equal to the number of books sold is:
A) Y = $102,000 + $5X
B) Y = $102,000 + $7X
C) Y = $78,000 + $7X
D) Y = $78,000 + $9X

Question

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.
The cost formula for selling and administrative expenses with "X" equal to the number of books sold is:
A) Y = $102,000 + $5X 
B) Y = $102,000 + $7X 
C) Y = $78,000 + $7X 
D) Y = $78,000 + $9X

Quizplus · Accepted Answer

Unit sales = $900,000 ÷ $50 per book = 18,000 books
Selling expenses = Fixed selling expenses + ($5 per book × 18,000 books)
$100,000 = Fixed selling expenses + $90,000
Fixed selling expenses = $100,000 − $90,000 = $10,000
Administrative expenses = Fixed administrative expenses + (0.04 × $900,000)
$104,000 = Fixed administrative expenses + $36,000
Fixed administrative expenses = $104,000 − $36,000 = $68,000
Variable administrative expense per unit = 0.04 × $50 per book = $2 per book
Y = ($10,000 + $68,000) + ($5 + $2) X
Y = $78,000 + $7X

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