Wendell's Bicycles store buys bicycles on average for $500 and sells them on average for $800. He pays a sales commission of 10% of sales revenue to his sales staff. Wendell pays $1,500 a month rent for his store, and also pays $3,000 a month to his staff in addition to the commissions. Wendell sold 100 bicycles in June.
-If Wendell prepares a contribution margin income statement for the month of June, what would be his operating income?
A) $58,000
B) $26,500
C) $17,500
D) $80,000

Question

Quizplus · Accepted Answer

To find the operating income, we need to calculate the contribution margin first.

Contribution margin per bike = Selling price per bike - Variable cost per bike
= $800 - $500 = $300

Total contribution margin for 100 bikes sold = $300 x 100 = $30,000

Now, we need to deduct the fixed expenses to find the operating income:

Total Fixed Expenses = Rent + Salaries + Commissions = $1,500 + $3,000 + 10% of sales revenue
= $1,500 + $3,000 + 0.1 x $80,000
= $12,500

Operating Income = Contribution Margin - Fixed Expenses
= $30,000 - $12,500
= $17,500

Therefore, the operating income for the month of June would be $17,500. Option C is the correct answer.

Wendell's Bicycles Store Buys Bicycles on Average for $500 and Sells