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# Income Statement for The Serious Reader Company

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Preparation of an Income Statement for The Serious Reader Company

The first case of this course provides an opportunity to prepare a segmented variable costing (contribution margin, behavioral) income statement and analyze the information. This is a very small company and the information may seem simplistic at first glance. Don't forget that numbers and hands-on practice best illustrate many basic accounting concepts.

The Serious Reader Company is a small online retailer operating out of a garage apartment. The owner buys books at garage sales, thrift shops, library sales, and whenever an opportunity arises. The company classifies all books into five categories based on cost of acquisition and estimated sales price. See below for details about books purchased and sold during the last year (201X).

Price Categories

A B C D E
Units Sold 2,000 1,000 500 400 400
Units Purchased 3,000 1,200 1,000 1,000 1,000

Resale Price \$4.00 \$15.00 \$25.00 \$45.00 \$40.00
Cost \$0.50 \$5.00 \$10.00 \$20.00 \$20.00

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

Variable operating expenses
Shipping per book \$ 1.50

Fixed expenses
Internet-related costs \$5,000
Travel, etc. 2,000

Required:

Computations (use Excel)
•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.

Memo (use Word)

Interpret the results from the computations and explain how the information is useful. Write a four or five paragraph memo to the owner of the business. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short essay to comment on the questions below (use Word). Start with an introduction and end with a summary or conclusion. Use headings. Maximum length of two pages.
•Why do many organizations make the effort to prepare a different type of income statement for internal purposes?
•Variable costing is not just about preparing income statements. Provide at least three scenarios in which understanding how costs behave is useful.

Assignment Expectations

Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.

#### Solution Preview

The response addresses the query posted in 702 words with APA references

// In the following paragraphs, there will be a discussion regarding the Serious Reader Company to see the impact of changes in the selling units and selling price over the contribution margin and net profitability. //

Memorandum
From:
To:
Date:
Sub: Contribution Margin and Variable Cost Concept
This memorandum will help to understand the variable costs and fixed costs in the terms of the impact on the net income. It will help to understand the impact of changes in the variable factors for maximizing the profitability of the organization.

Introduction

The Serious Reader Company is a small online retailer that is engaged in the business of selling of books. The company has both variable costs and fixed costs. The company wants to evaluate the income statement through the changes in selling price and variable costs in order to understand the impact of the different level of costs on the income earning. There is also a description regarding the different format of income statement used by the organization for improving their operating profitability.

Contribution Margin

The segmented income statement of the ...

#### Solution Summary

The expert examines income statements for The Serious Reader Company. The response addresses the query posted in 702 words with APA references.

\$2.19