Preparation of an Income Statement for The Serious Reader Company
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
Advertising 1,000
Other overhead 3,000
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.