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 $4,000 each. Variable selling expenses are $310 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 $1,920 each. bok int POLARIX Income Statement-Consumer ATV Department For Year Ended December 31 Sales $ 664,000 Cost of goods sold 318,720 Gross margin 345,280 Operating expenses Selling expenses $150,000 Administrative expenses 42.109 192,100 Net Income $153,180 am 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

1.

Sales		$664,000
Less: Variable expenses
...Variable cost of goods sold	$318,720
...Variable selling expenses	$51,460
...Variable administrative expenses	$12,630
Total Variable expenses		$382,810
Contribution margin		$281,190
Less: Fixed expenses
...Fixed Selling expenses	$98,540
...Fixed administrative expenses	$29,470
Total fixed expenses		$128,010
Net income (loss)		$153,180

2.

For each ATV sold during the year, what is the contribution margin towards covering fixed expenses and earning income.

Contribution margin per ATV = Contribution margin / Number of ATV

= $281,190 / 166

= $1,694

Working Notes :

Number of ATVs = Total sales / selling price

= $664,000 / $4,000

= 166

Variable selling expenses = 166 * $310

= $51,460

Variable administrative expenses = $42,100 * 30%

= $12,630

Fixed selling expenses = $150,000 - $51,460

= $98,540

Fixed administrative expenses = $42,100 - $12,630

= $29,470