Preparation of an Income Statement for The Serious Reader Company
ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
Case Assignment 1
Preparation of an Income Statement for The Serious
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
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).
In addition to purchasing inventory (used books), the company incurs some
Variable operating expenses
Shipping per book
1. 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
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
2. 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
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.
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.
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