This question should be answered only after Research and Application 5—20 are completed.

Required:

1. Referring to the data for Blue Nile in Research and Application 5-20 and the data on net sales available on the company’s website, estimate the variable and fixed components of the company’s quarterly selling, general, and administrative expense. Express Blue Nile’s variable and fixed selling, general, and administrative expenses in the form

Y = a + bX, where X

is net sales.

2. Using the formula from part (1) above, prepare a contribution format income statement for the third quarter of 2005 assuming that Blue Nile’s net sales were $45,500 and its cost of sales as a percentage of net sales remained unchanged from the prior quarter

2004 2005 Quarter 4 Quarter 2 Quarter 1 Quarter 2 Quarter 3 Quarter 1 Net sales .... Cost of sales Gross profit ... Selling, general, and administrative expense ........ Operating income .. $44,116 $34,429 $43,826 $33,836 $9,687 $9,990 $6,123 $3,564 $6,184 $3,806 $5,033 $7,343 $5,308 $5,111