An income statement for Sam's Bookstore for the first quarter of the year is presented below: Sam's Bookstore
Income Statement
For Quarter Ended March 31
Sales= $900,000
Cost of goods sold= 635,000
Gross margin= 265,000
Selling and administrative expenses:
Selling= $101,000
Administration= 106,000
=207,000
Net operating income= $58,000
On average, a book sells for $60. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales with the remainder being fixed.
The contribution margin for Sam's Bookstore for the first quarter is?

The contribution margin for Sam's Bookstore for the first quarter is $163,000.

Explanation:

The contribution margin is the sales minus total variable cost. This can be calculated as follows:

Units of books sold = Sales / Selling price per book = $900,000 / $60 = 15,000

Variable selling expenses = Units of books sold * Variable selling expenses per book = 15,000 * $5 = $75,000

Variable administrative expenses = Sales * 3% = $900,000 * 3% = $27,000

Total variable cost = Cost of goods sold + Variable selling expenses + Variable administrative expenses = $635,000 + $75,000 + $27,000 = $737,000

Contribution margin = Sales - Total variable cost = $900,000 - $737,000 = $163,000

Therefore, the contribution margin for Sam's Bookstore for the first quarter is $163,000.

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