Polarix is a retailer of ATVs (all-terrain vehicles) and accessories. An income statement for its Consumer ATV Department for the current year follows.

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 $3,200 each. Variable selling expenses are $250 per ATV. The remaining selling expenses are fixed. Administrative expenses are 80% variable and 20% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,880 each.
   

POLARIX Income Statement—Consumer ATV Department For Year Ended December 31, 2017
Sales				$	620,800
Cost of goods sold					364,720
Gross margin					256,080
Operating expenses
Selling expenses	$	165,000
Administrative expenses		40,700			205,700
Net income				$	50,380

Required:

1. Prepare an income statement for this current year using the contribution margin format.

Explanation

1.
Variable expenses
Cost of goods sold (194 ATVs* × $1,880 per ATV) = $364,720
Selling expenses (194 ATVs × $250 per ATV) = $48,500
Administrative expenses (80% × $40,700) = $32,560

Fixed expenses
Selling expenses [$165,000 – (194 ATVs × $250 per ATV)] = $116,500
Administrative expenses (20% × $48,500) = $8,140

*$620,800 sales ÷ $3,200 sales price per unit = 194 ATVs.    

2.
The company sold 194 ATVs and its contribution margin totals $175,020 for the year. Consequently, the contribution of each ATV toward covering fixed costs and toward earning income was $902 ($175,020 ÷ 194 ATVs). We can also compute the $902 as follows.

  

Selling price per ATV				$	3,200
Variable expenses
Cost per ATV	$	1,880
Selling expenses ($250 per ATV)		250
Administrative expenses [(80%×$40,700) ÷ 194 ATVs]		168			2,298
Contribution margin per ATV				$	902

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