Toby's Farm Store buys portable generators for $500 and sells them for $800. He pays a sales commission of 5% of sales revenue to his sales staff. Toby pays $2,000 a month rent for his store, and also pays $1,800 a month to his staff in addition to the commissions. Toby sold 200 generators in June.
-If Toby prepares a contribution margin income statement for the month of June, what would be his operating income?
A) $48,200
B) $108,000
C) $160,000
D) $56,000

Question

Quizplus · Accepted Answer

Operating income calculation:1. Sales revenue = 200 generators * $800 = $160,0002. Cost of goods sold (COGS) = 200 generators * $500 = $100,0003. Gross margin = Sales revenue - COGS = $160,000 - $100,000 = $60,0004. Sales commission = 5% of $160,000 = $8,0005. Total variable costs = COGS + Sales commission = $100,000 + $8,000 = $108,0006. Contribution margin = Sales revenue - Total variable costs = $160,000 - $108,000 = $52,0007. Fixed costs = Rent + Staff wages = $2,000 + $1,800 = $3,8008. Operating income = Contribution margin - Fixed costs = $52,000 - $3,800 = $48,200

Toby's Farm Store Buys Portable Generators for $500 and Sells