Schrute Farm Sales buys portable generators for $ 470 and sells them for $ 720 He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $ 3 comma 000 a month rent for his store, and also pays $ 1 comma 700 a month to his staff in addition to the commissions. Mr. Schrute sold 700 generators in June. If Mr. Schrute prepares a contribution margin income statement for the month of June, what would be his operating income?

The contribution margin statement is found below with a contribution margin of $149,800 and operating income of $145100

Explanation:

Contribution Margin Statement

Sales  revenue ($720*700)              $504000

Variable costs:

Cost of generators($470*700)         ($329000)

Commission(5%*$504000)               ($25200)

Contribution margin                           $149,800

Fixed costs

Rent                                                     ($3000)

Additional commission                       ($1,700)

Operating income                              $145100

Cost of rent is fixed as it is not depended on the quantity of generators sold.

Additional commission is fixed amount,so it is a fixed cost, while costs of buying generators  as well as the commission of 5% are both variable costs.

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