Question

Joseph Moore recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $10 per person. To differentiate his gym and better serve his clients, Joseph provides a towel, a bottle of water, and an after-workout protein shake to each person participating in a class, at a cost of $1.83 per person. Joseph employs four part-time instructors and pays them each $1,800 per month. He also pays himself a monthly salary of $6,300. Joseph’s other monthly costs are $2,300 for rent, $1,650 for depreciation on his 32 bikes, and $1,600 in utilities and insurance.

(a) What is Joseph’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 Joseph’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 Joseph’s monthly contribution format income statement. Assume that he teaches 4,800 clients. (Round per unit values to 2 decimal places, e.g. 52.75 and all other answers to 0 decimal places, e.g. 1,234.)

						Per Unit
select an income statement item                                                          Depreciation ExpenseContribution MarginRent ExpenseInstructor Salaries ExpenseFixed ExpensesSales RevenueVariable ExpensesOperating IncomeManagement Salary ExpenseTotal Fixed ExpensesUtilities & Insurance Expense				$enter a dollar amount		$enter a dollar amount
select an opening name for section one                                                          Utilities & Insurance ExpenseOperating IncomeDepreciation ExpenseVariable ExpensesManagement Salary ExpenseTotal Fixed ExpensesFixed ExpensesContribution MarginSales RevenueRent ExpenseInstructor Salaries Expense
select an income statement item                                                          Contribution MarginFixed ExpensesOperating IncomeSales RevenueTotal Fixed ExpensesUtilities & Insurance ExpenseRent ExpenseDepreciation ExpenseInstructor Salaries ExpenseTowel, Water, ShakeManagement Salary Expense				enter a dollar amount		enter a dollar amount
select a summarizing line for the first part                                                          Variable ExpensesOperating IncomeManagement Salary ExpenseContribution MarginInstructor Salaries ExpenseFixed ExpensesDepreciation ExpenseSales RevenueTotal Fixed ExpensesRent ExpenseUtilities & Insurance Expense				enter a total amount for the first part		$enter a total amount for the first part
select an opening name for section two                                                          Sales RevenueUtilities & Insurance ExpenseManagement Salary ExpenseRent ExpenseDepreciation ExpenseTotal Fixed ExpensesInstructor Salaries ExpenseOperating IncomeFixed ExpensesContribution MarginVariable Expenses
select an income statement item                                                          Management Salary ExpenseVariable ExpensesRent ExpenseDepreciation ExpenseTotal Fixed ExpensesUtilities & Insurance ExpenseSales RevenueContribution MarginOperating IncomeInstructor Salaries ExpenseFixed Expenses		$enter a dollar amount
select an income statement item                                                          Sales RevenueManagement Salary ExpenseOperating IncomeFixed ExpensesVariable ExpensesInstructor Salaries ExpenseDepreciation ExpenseRent ExpenseTotal Fixed ExpensesUtilities & Insurance ExpenseContribution Margin		enter a dollar amount
select an income statement item                                                          Fixed ExpensesUtilities & Insurance ExpenseVariable ExpensesInstructor Salaries ExpenseRent ExpenseDepreciation ExpenseManagement Salary ExpenseTotal Fixed ExpensesSales RevenueContribution MarginOperating Income		enter a dollar amount
select an income statement item                                                          Fixed ExpensesRent ExpenseOperating IncomeTotal Fixed ExpensesManagement Salary ExpenseUtilities & Insurance ExpenseDepreciation ExpenseContribution MarginVariable ExpensesSales RevenueInstructor Salaries Expense		enter a dollar amount
select an income statement item                                                          Depreciation ExpenseSales RevenueTotal Fixed ExpensesOperating IncomeInstructor Salaries ExpenseFixed ExpensesManagement Salary ExpenseUtilities & Insurance ExpenseContribution MarginRent ExpenseVariable Expenses		enter a dollar amount
select a closing name for section two                                                          Variable ExpensesDepreciation ExpenseSales RevenueInstructor Salaries ExpenseContribution MarginOperating IncomeUtilities & Insurance ExpenseTotal Fixed ExpensesManagement Salary ExpenseFixed ExpensesRent Expense				enter a total amount for section two
select a closing name for this statement                                                          Variable ExpensesInstructor Salaries ExpenseTotal Fixed ExpensesUtilities & Insurance ExpenseFixed ExpensesRent ExpenseOperating IncomeContribution MarginDepreciation ExpenseManagement Salary ExpenseSales Revenue				$enter a total amount for this statement

Answer 1

Part A

Selling price per unit	10.00
Less: cost per unit (means person)	1.83
Contribution margin per unit	8.17

Part B

Contribution margin per unit	8.17
Divided by: Selling price per unit	10.00
Contribution margin ratio	81.70%

Part C

Total amount = Per Unit * 4800 units

Contribution format income statement	Per Unit	Total amount
Sales Revenue	10.00	48,000
Variable Expenses
Towel, Water, Shake	1.83	8,784
Contribution Margin	8.17	39,216
Fixed Expense
Instructor Salaries Expense (1800*4)		7,200
Management Salary Expense		6,300
Rent Expense		2,300
Depreciation Expense		1,650
Utilities & Insurance Expense		1,600
Total Fixed Expenses		19,050
Operating Income		20,166