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 $210 per ATV. The remaining selling expenses are fixed. Administrative expenses are 50% variable and 50% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,830 each.

POLARIX Income Statement—Consumer ATV Department For Year Ended December 31, 2017
Sales				$	652,000
Cost of goods sold					298,290
Gross margin					353,710
Operating expenses
Selling expenses	$	165,000
Administrative expenses		41,900			206,900
Net income				$	146,810

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.)

	POLARIX Income Statement - Consumer ATV Department For Year Ended December 31, 2017 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

Answer
(1) Contribution Margin Income Statement :-
Sales (4000 * 163 ATV)		$     652,000
Less: Variable Exp :-
Variable Admn Exp (41900 * 50%)	$       20,950
Variable COGS (1830 * 163 ATV)	$     298,290
Variable Selling Exp (210 * 163 ATV)	$       34,230
Total Variable Exp		$     353,470
Contribution Margin		$     298,530
Less: Fixed Exp:-
Fixed Admn Exp (41900 * 50%)	$       20,950
Fixed Selling Exp (165000 – 34230)	$     130,770
Total Fixed Exp		$     151,720
Net Income/(Loss)		$     146,810
(2) Contribution Margin per ATV = Total contribution/No of ATV sold
Total contribution = 298,530
No of ATV sold = 163
Contribution margin per ATV = 298,530/163 = $ 1831.47