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 $4,200 each. Variable selling expenses are $250 per ATV. The remaining selling expenses are fixed. Administrative expenses are 70% variable and 30% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,840 each. POLARIX Income Statement-Consumer ATV Department For Year Ended December 31, 2017 Sales $663,600 Cost of goods sold 290, 720 Gross margin 372,880 Operating expenses Selling expenses $150,000 Administrative expenses 42, 100 192,109 Net income $180,780 Required: 1. Prepare an income statement for this current year using the contribution margin format. (Round contribution margin per ATV to the nearest dollar amount.)

Answer 1

1.

Number of ATVs sold = Sales revenue/Selling price per ATV

= 663,600/4,200

= 158

Variable Administrative expenses = 42,100 x 70%

= $29,470

Fixed administrative expenses = 42,100 x 30%

= $12,630

Variable Selling expenses = 250 x 158

= $39,500

Fixed selling expenses = Total selling expenses - Variable Selling expenses

= 150,000 - 39,500

= $110,500

Income statement

Sales		663,600
Variable expenses:
Cost of goods sold	290,720
Variable Administrative expenses	29,470
Variable Selling expenses	39,500
Total Variable expenses		- 359,690
Contribution margin		303,910
Fixed expenses:
Fixed Administrative expenses	12,630
Fixed Selling expenses	110,500
Total Fixed expenses		- 123,130
Net income		$180,780

2.

Contribution margin per ATV = Total contribution margin/Number of ATVs sold

= 303,910/158

= $1,923

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