Question

Anthony Herrera recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $5.00 per person. To differentiate his gym and better serve his clients, Anthony provides a towel, a bottle of water, and an after-workout protein shake to each person participating in a class, at a cost of $1.75 per person. Anthony employs three part-time instructors and pays them each $1,000 per month. He also pays himself a monthly salary of $4,000. Anthony’s other monthly costs are $1,500 for rent, $1,250 for depreciation on his 30 bikes, and $1,800 in utilities and insurance.

(a) What is Anthony’s contribution margin per unit? (Round answer to 2 decimal places, e.g. 52.75.)

Contribution margin

$Enter contribution margin in dollars per unit

per unit

(b) What is Anthony’s contribution margin ratio? (Round answer to 2 decimal places, e.g. 52.75.)

Contribution margin ratio

Enter contribution margin ratio in percentages

%

(c) Prepare Anthony’s monthly contribution format income statement. Assume that he teaches 5,000 clients. (Round per unit values to 2 decimal places, e.g. 52.75 and all other answers to 0 decimal places, e.g. 5,275.)

						Unit
Select an income statement item                                                          Total Fixed ExpensesDepreciation ExpenseFixed ExpensesRent ExpenseOperating IncomeContribution MarginInstructor Salaries ExpenseManagement Salary ExpenseSales RevenueVariable ExpensesUtilities & Insurance Expense				$Enter a dollar amount		$Enter a dollar amount
Select an opening name for section one                                                          Total Fixed ExpensesFixed ExpensesUtilities & Insurance ExpenseContribution MarginSales RevenueOperating IncomeManagement Salary ExpenseDepreciation ExpenseRent ExpenseVariable ExpensesInstructor Salaries Expense
Select an income statement item                                                          Instructor Salaries ExpenseRent ExpenseTotal Fixed ExpensesContribution MarginSales RevenueOperating IncomeManagement Salary ExpenseFixed ExpensesDepreciation ExpenseUtilities & Insurance ExpenseTowel, Water, Shake				Enter a dollar amount		Enter a dollar amount
Select a summarizing line for the first part                                                          Variable ExpensesInstructor Salaries ExpenseContribution MarginRent ExpenseTotal Fixed ExpensesUtilities & Insurance ExpenseOperating IncomeFixed ExpensesDepreciation ExpenseSales RevenueManagement Salary Expense				Enter a total amount for the first part		$Enter a total amount per unit rounded to 2 decimal places
Select an opening name for section two                                                          Management Salary ExpenseInstructor Salaries ExpenseContribution MarginOperating IncomeRent ExpenseVariable ExpensesUtilities & Insurance ExpenseFixed ExpensesSales RevenueDepreciation ExpenseTotal Fixed Expenses
Select an income statement item                                                          Sales RevenueVariable ExpensesTotal Fixed ExpensesRent ExpenseManagement Salary ExpenseOperating IncomeUtilities & Insurance ExpenseContribution MarginInstructor Salaries ExpenseFixed ExpensesDepreciation Expense		$Enter a dollar amount
Select an income statement item                                                          Rent ExpenseVariable ExpensesContribution MarginDepreciation ExpenseInstructor Salaries ExpenseFixed ExpensesSales RevenueOperating IncomeManagement Salary ExpenseTotal Fixed ExpensesUtilities & Insurance Expense		Enter a dollar amount
Select an income statement item                                                          Variable ExpensesFixed ExpensesUtilities & Insurance ExpenseManagement Salary ExpenseInstructor Salaries ExpenseContribution MarginRent ExpenseDepreciation ExpenseOperating IncomeTotal Fixed ExpensesSales Revenue		Enter a dollar amount
Select an income statement item                                                          Management Salary ExpenseRent ExpenseContribution MarginVariable ExpensesInstructor Salaries ExpenseOperating IncomeFixed ExpensesTotal Fixed ExpensesUtilities & Insurance ExpenseDepreciation ExpenseSales Revenue		Enter a dollar amount
Select an income statement item                                                          Contribution MarginInstructor Salaries ExpenseManagement Salary ExpenseSales RevenueOperating IncomeUtilities & Insurance ExpenseVariable ExpensesDepreciation ExpenseTotal Fixed ExpensesFixed ExpensesRent Expense		Enter a dollar amount
Select a closing name for section two                                                          Total Fixed ExpensesFixed ExpensesUtilities & Insurance ExpenseManagement Salary ExpenseSales RevenueContribution MarginInstructor Salaries ExpenseVariable ExpensesRent ExpenseOperating IncomeDepreciation Expense				Enter a total amount for section two
Select a closing name for this statement                                                          Management Salary ExpenseContribution MarginRent ExpenseSales RevenueTotal Fixed ExpensesOperating IncomeVariable ExpensesDepreciation ExpenseUtilities & Insurance ExpenseInstructor Salaries ExpenseFixed Expenses				$Enter a total amount for this statement

Answer 1

a)

Selling price per unit =  $5.00 per person

Variable cost per unit = $1.75 per person

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 5 - 1.75

= $3.25

b)

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 3.25/5

= 65%

c)

Contribution margin income statement

Sales (5,000 x 5)	25,000
Variable cost (5,000 x 1.75)	- 8,750
Contribution margin	16,250
Fixed cost
Instructor Salaries Expense	3,000
Management Salary Expense	4,000
Rent Expense	1,500
Depreciation Expense	1,250
Utilities & Insurance Expense	1,800
Total Fixed Expenses	- 11,550
Operating income	$4,700

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