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 $270 per ATV. The remaining selling expenses are fixed. Administrative expenses are 40% variable and 60% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,860 each.

POLARIX Income Statement—Consumer ATV Department For Year Ended December 31
Sales				$	618,800
Cost of goods sold					338,520
Gross margin					280,280
Operating expenses
Selling expenses	$	130,000
Administrative expenses		40,700			170,700
Net income				$	109,580

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 under contribution format

Sales		618800
Less: Variable cost
Cost of goods sold	338520
Selling expense (182*270)	49140
Administrative expense (40700*40%)	16280
Total Variable cost		403940
Contribution margin		214860
Less: Fixed cost
Selling expense	80860
Administrative expense	24420
Total Fixed cost		105280
Operating income		109580