Question

Jean's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The Fitness Club also sells nutrition products. Jean's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year.

Account Amount Account Amount
Membership revenue $140,000 Personal trainer wages expense _____
Personal training revenue $75,000 Space rental expense $11,000
Product Sales $65,000 Straight line depreciation expense $6,000
Cost of Product sold $35,000 Rental insurance expense $3,000
Front desk staff wages expense $12,000


If a contribution margin income statement is prepared for the year, what is operating income?

a. $207,500

b. $280,000

c. $175,500

d. $384,500

Answer 1

The operating income of Jean's Fitness Club is calculated by subtracting total variable costs and total fixed costs from total revenue. After performing the calculations, the operating income is found to be $175,500, which corresponds to option c.

Step-by-step explanation:

To calculate Jean's Fitness Club's operating income, we need to prepare a contribution margin income statement, which includes revenues, variable costs, contribution margin, fixed costs, and operating income.

First, we sum up all the revenues:

• Membership revenue: $140,000

• Personal training revenue: $75,000

• Product Sales: $65,000

• Total Revenue = $140,000 + $75,000 + $65,000 = $280,000

Next, we calculate the variable costs:

• Personal trainer wages (50% of personal training revenue): 0.50 * $75,000 = $37,500

• Cost of Product sold: $35,000

• Total Variable Cost = $37,500 + $35,000 = $72,500

Contribution Margin = Total Revenue - Total Variable Cost = $280,000 - $72,500 = $207,500

Now, we calculate the fixed costs:

• Space rental expense: $11,000

• Straight line depreciation expense: $6,000

• Rental insurance expense: $3,000

• Front desk staff wages expense: $12,000

• Total Fixed Cost = $11,000 + $6,000 + $3,000 + $12,000 = $32,000

Operating Income = Contribution Margin - Total Fixed Cost = $207,500 - $32,000 = $175,500

The correct answer to the question is option c. $175,500.

Answer 2

c. $175,500

Step-by-step explanation:

Revenue $140,000

Training revenue $75,000

Product Sales $65,000

Total Revenue $280,000

Variable Expenses

Personal trainer wages expense $70,000

Cost of Product sold $35,000

Total Variable Cost ($105,000)

Contribution margin / operating income $175,000

Fixed Costs

Space rental expense $11,000

Depreciation expense $6,000

Rental insurance expense $3,000

Front desk staff wages expense $12,000

Total Fixed cost ($32,000)

Net Income $143,000