Question

Polarix is a retailer of ATVs (all-terrain vehicles) and accessories. An income statement for its Consumer ATV Department for the current year follows. ATVs sell for $3,400 each. Variable selling expenses are $250 per ATV. The remaining selling expenses are fixed. Administrative expenses are 80% variable and 20% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,850 each.

POLARIX Income Statement—Consumer ATV Department For Year Ended December 31
Sales				$	680,000
Cost of goods sold					370,000
Gross margin					310,000
Operating expenses
Selling expenses	$	175,000
Administrative expenses		41,600			216,600
Net income				$	93,400

Required:
1. Prepare an income statement for the current year using the contribution margin format. (Do not round intermediate calculations. Round contribution margin per ATV value to the nearest whole number.)

Answer 1

income statement

Particular	amount	amount
Sales		$680000
(-) variable expenses
Cost of goods sold	$370000
Variable administrative expenses ($41600×80%)	$33280
Variable selling expenses ( note 1)	$50000
Total variable expenses		($453280)
Contribution margin		$226720
(-) fixed expenses
Fixed administrative expenses ($41600×20%)	$8320
Fixed selling expenses ($175000 - $50000)	$125000
Total fixed expenses		($133320)
Net income		$93400

Note 1

Number of units sold = sales/selling price

= $680000/$3400 = 200units

Variable selling expenses = 200×$250 = $50000

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