Question

Exercise 19-8 Contribution margin format income statement LO P2

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 $220 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 $1,840 each.

POLARIX Income Statement—Consumer ATV Department For Year Ended December 31, 2017
Sales				$	636,000
Cost of goods sold					292,560
Gross margin					343,440
Operating expenses
Selling expenses	$	130,000
Administrative expenses		42,100			172,100
Net income				$	171,340

Required

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.)

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

• All working forms part of the answer
• Contribution margin = Sales Revenue (-) All variable expenses
• Units sold = $636000 / $4000 = 159 units
• Variable administrative expense = 42100 x 30% = $12630, Fixed = 42100 – 12630 = $29470
• Requirement 1: Contribution margin, including working for Requirement 2

	Units	Per Unit ($)	Amount ($)
Sales	159	4000	636000
(-) variable costs:
Cost of Goods Sold	159	1840	292560
Selling expenses	159	220	34980
Administrative expense	159	[12630/15] 79.43396226	12630 [calculated above]
Total variable cost	159	2139.433962	340170
Contribution margin	159	1860.566038	295830
(-) Fixed Cost
Selling expenses			95020
Administrative expense			29470 [calculated above]
Total Fixed Cost			124490
Net Income			$171340

Total Contribution margin = $295,830

• Requirement 2: Contribution per ATV = $1861, as calculated above.