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 $3,800 each. Variable selling expenses are $220 per ATV. The remaining selling expenses are fixed. Administrative expenses are 30% variable and 70% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,880 each.

POLARIX Income Statement—Consumer ATV Department For Year Ended December 31
Sales				$	634,600
Cost of goods sold					313,960
Gross margin					320,640
Operating expenses
Selling expenses	$	130,000
Administrative expenses		42,900			172,900
Net income				$	147,740

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.)

POLARIX
Income Statement - Consumer ATV Department
For Year Ended December 31
Sales		$634,600
Less: Variable expenses
Variable administrative expenses	$12,870
Variable cost of goods sold
Variable selling expenses
Total administrative expenses
Total variable expenses		12,870
Contribution margin
Less: Fixed expenses
Fixed administrative expenses
Fixed selling expenses
		0
Net income (loss)
2. For each ATV sold during this year, what is the contribution toward covering fixed expenses and earning income?
Contribution margin per ATV:

Answer 1

Ans:

1.Polarix

Income Statement : Consumer ATV Department

For the year ended December 31 2015

Sales		$ 634,600
Less: Variable Expenses
Cost of Goods Sold ( 167 x $ 1,880)	313,960
Selling Expenses ( 167 x $ 220)	36,740
Administrative Expenses ( 167 x $ 77.065)	12870	363,570
Contribution Margin ( 175 x $ 1,534)		271,030
Fixed Expenses
Selling $ ( 130,000 – 36,740)	93,260
Administrative ( $ 42,900 x 30%)	30,030	123,290
Net Income ( loss)		147,740

2. Contribution margin per ATV : $ 1,622.93

271030/167

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