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6 July, 13:38

An income statement for Tommy's Bookstore for the first quarter of the year is presented below: Tommy's Bookstore Income Statement For Quarter Ended March 31 Sales $ 880,000 Cost of goods sold 540,000 Gross margin 340,000 Selling and administrative expenses Selling $ 115,000 Administration 134,000 249,000 Net operating income $ 91,000 On average, a book sells for $55. Variable selling expenses are $6 per book with the remaining selling expenses being fixed. The variable administrative expenses are 5% of sales with the remainder being fixed. The contribution margin for Tommy's Bookstore for the first quarter is:

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  1. 6 July, 14:23
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    Contribution margin = $200,000

    Explanation:

    As per the data given in the question,

    Contribution margin = Sales - Variable expense

    Number of books = $880,000 : $55

    =16,000

    Gross margin = 340,000

    Variable selling expenses = 16,000 * $6

    =$96,000

    Variable administrative expense = $880,000 * 5%

    =$44,000

    Total = $96,000 + $44,000

    = $140,000

    Contribution margin = $340,000 - $140,000

    = $200,000
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