Question

Price Categories
	A	B	C	D	E
Units Sold	4,000	1,000	500	400	400
Unites Purchased	6,000	1,200	1,000	1,000	1,000
Resale Price	$4.00	$12.00	$20.00	$45.00	$60.00
Cost	$0.50	$4.00	$10.00	$20.00	$20.00

• Prepare a segmented variable costing (behavioral) income statement for the company in good format.
• Prepare a second variable costing statement assuming 90% of all the books in each category purchased were actually sold.
• Prepare a third variable costing statement assuming that the price is increased by 50% for all five categories (use original sales information).
• The owner enjoys the used-book business. Any suggestions as how to turn this into a full-time business venture so the owner can quit his other job? Prepare another income statement to support your idea.

In addition to purchasing inventory (used books), the company incurs some operating expenses.

Variable Operating Expenses
Shipping per book	$1.50
Common fixed expenses
Internet-related costs	$10,000
Travel, etc.	$4,000
Advertising	$1,000
Other overhead	$5,000

Answer 1

1.Variable cost of products

Item	Unit variable cost per unit	Variable shipping expense per unit	Units sold	Total variable cost of purchase (units sold * unit variable cost)	Total shipping cost (shipping cost per unit * units sold)
A	0.5	1.5	4,000	4,000 * 0.5=2,000	4000 *1.5=6,000
B	4	1.5	1,000	1,000 * 4=4000	1000 * 1.5=1,500
C	10	1.5	500	500 * 10=5000	500 * 1.5=750
D	20	1.5	400	400 * 20= 8000	400 * 1.5= 600
E	20	1.5	400	400 * 20= 8000	400 * 1.5= 600

Sales

Item	Unit price	units sold	Total sales(unit price * units sold)
A	4	4,000	4 * 4000= 16,000
B	12	1,000	12 * 1000= 12,000
C	20	500	20 * 500= 10,000
D	45	400	45 * 400=18,000
E	60	400	60 * 400= 24,000

Variable costing income statement

	A	B	C	D	E	TOTAL
Sales	16,000	12,000	10,000	18,000	24,000	80,000
Variable costs
purchase cost	(2,000)	(4,000)	(5,000)	(8,000)	(8,000)	(27,000)
shipping cost	(6,000)	(1500)	(750)	(600)	(600)	(9450)
Contribution margin (sales - variable costs	8,000	6,500	4,250	9,400	15,400	43,550
Common fixed expenses
Internet related						(10,000)
Travel						(4,000)
Advertising						(1,000)
other overhead						(5,000)
Operating income ( contribution margin - fixed costs)						23,550

2.If 90% of books purchased is sold, sales and total variable cost become as calculated in below table

	Purchase	Sales (90% of purchase)	unit price	total sales= unit sales * unit price
A	6,000	6000 * 0.9= 5,400	4	5400 * 4=21,600
B	1200	1,200 * 0.9=1,080	12	1080 * 12=12,960
C	1,000	1,000 * 0.9= 900	20	20 * 900= 18,000
D	1,000	1,000 * 0.9= 900	45	45 * 900=40,500
E	1,000	1,000 * 0.9= 900	60	60 * 900=54,000

Variable cost

Item	Unit variable cost per unit	Variable shipping expense per unit	Units sold	Total variable cost of purchase (units sold * unit variable cost)	Total shipping cost (shipping cost per unit * units sold)
A	0.5	1.5	5,400	5,400 * 0.5=2,700	5,400 *1.5=8,100
B	4	1.5	1,080	1,080 * 4=4320	1080 * 1.5=1,620
C	10	1.5	900	900 * 10=9000	900 * 1.5=1350
D	20	1.5	900	900 * 20= 18000	900 * 1.5=1350
E	20	1.5	900	900 * 20= 18000	900 * 1.5=1350

Income Statement

	A	B	C	D	E	TOTAL
Sales	21,600	12,960	18,000	40,500	54,000	147,060
Variable costs
purchase cost	(2,700)	(4,320)	(9,000)	(18,000)	(18,000)	(52,020)
shipping cost	(8,100)	(1620)	(1,350)	(1,350)	(1,350)	(13,770)
Contribution margin (sales - variable costs	10,800	7020	7650	21,150	34,650	81,270
Common fixed expenses
Internet related						(10,000)
Travel						(4,000)
Advertising						(1,000)
other overhead						(5,000)
Operating income ( contribution margin - fixed costs)						61,270

3.if price increased by 50%

Item	previous Unit price	New price (previous price * 1.5)	units sold	Total sales(unit price * units sold)
A	4	4 * 1.5= 6	4,000	6 * 4000= 24,000
B	12	12 * 1.5 = 18	1,000	18 * 1000= 18,000
C	20	20* 1.5= 30	500	30 * 500= 15,000
D	45	45 * 1.5=67.5	400	67.5 * 400=27,000
E	60	60* 1.5=90	400	90 * 400= 36,000

Item	Unit variable cost per unit	Variable shipping expense per unit	Units sold	Total variable cost of purchase (units sold * unit variable cost)	Total shipping cost (shipping cost per unit * units sold)
A	0.5	1.5	4,000	4,000 * 0.5=2,000	4000 *1.5=6,000
B	4	1.5	1,000	1,000 * 4=4000	1000 * 1.5=1,500
C	10	1.5	500	500 * 10=5000	500 * 1.5=750
D	20	1.5	400	400 * 20= 8000	400 * 1.5= 600
E	20	1.5	400	400 * 20= 8000	400 * 1.5= 600

New income statement

	A	B	C	D	E	TOTAL
Sales	24,000	18,000	15,000	27,000	36,000	120,000
Variable costs
purchase cost	(2,000)	(4,000)	(5,000)	(8,000)	(8,000)	(27,000)
shipping cost	(6,000)	(1500)	(750)	(600)	(600)	(9450)
Contribution margin (sales - variable costs	16,000	12,500	9250	18,400	27,400	83,550
Common fixed expenses
Internet related						(10,000)
Travel						(4,000)
Advertising						(1,000)
other overhead						(5,000)
Operating income ( contribution margin - fixed costs)						63,550

4.Here we can see that , owner not selling his all purchases.he is not selling even half of some books purchased. if he can sell all the books purchased then he can quit his job.because products providing a good contribution.so he have to find ways to increase the sales to quite his job and turn its to a full time business venture

if  sales is equal to purchase

Item	Unit price	units sold=purchase	Total sales(unit price * units sold)
A	4	6,000	4 * 6000= 24,000
B	12	1,200	12 * 1200= 14,400
C	20	1000	20 * 1000= 20,000
D	45	1000	45 * 1000=45,000
E	60	1000	60 * 1000= 60,000

Item	Unit variable cost per unit	Variable shipping expense per unit	Units sold	Total variable cost of purchase (units sold * unit variable cost)	Total shipping cost (shipping cost per unit * units sold)
A	0.5	1.5	6,000	6,000 * 0.5=3,000	6000 *1.5=8,000
B	4	1.5	1,200	1,200 * 4=4800	1200 * 1.5=1,800
C	10	1.5	1000	1000 * 10=10,000	1000 * 1.5=1500
D	20	1.5	1000	1000 * 20= 20,000	1000 * 1.5= 1500
E	20	1.5	1000	1000 * 20= 20,000	1000 * 1.5= 1500

	A	B	C	D	E	TOTAL
Sales	24,000	14,400	20,000	45,000	60,000	163,400
Variable costs
purchase cost	(3,000)	(4,800)	(10,000)	(20,000)	(20,000)	(57,800)
shipping cost	(8,000)	(1800)	(1500)	(1500)	(1500)	(14,300)
Contribution margin (sales - variable costs	13,000	7800	8500	23,500	38,500	91,300
Common fixed expenses
Internet related						(10,000)
Travel						(4,000)
Advertising						(1,000)
other overhead						(5,000)
Operating income ( contribution margin - fixed costs)						71,300

He currently earning 23,550 as calculated in answer1 but if he can sold all books purchased he can earn 71,300.