ACCOUNTING

Exercise 19-9 Contribution margin format income statement L.O. P3

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, on average, for $3,800. Variable selling expenses are $270 each. The remaining selling expenses are fixed. Administrative expenses are 40% variable and 60% 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 21, 2011
  Sales     $ 646,000
  Cost of goods sold       311,100
     


  Gross margin       334,900
  Operating expenses        
      Selling expenses $ 135,000    
      Administrative expenses   59,500   194,500
 




  Net income     $ 140,400
     





 

Required:

 

1. Prepare an income statement for this current year using the contribution margin format. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

2. For each ATV sold during this year, what is the contribution toward covering fixed expenses and that toward earning income? (Omit the “$” sign in your response.)

 

  Contribution margin per ATV  

6.

Exercise 19-11 Absorption costing and over-production L.O. C2

Rourke Inc. reports the following annual cost data for its single product.

 

       
  Normal production and sales level   60,000  units
  Sales price $ 56.00  per unit
  Direct materials $ 9.00  
  Direct labor $ 6.50  per unit
  Variable overhead $ 11.00  per unit
  Fixed overhead $ 720,000  in total

 

If Rourke increases its production to 80,000 units, while sales remain at the current 60,000 unit level, by how much would the company’s gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production. (Omit the “$” sign in your response.)

 

  Gross margin    

7.Problem 19-1A Variable costing income statement and conversion to absorption costing income L.O. P2, P4

Torres Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for its first year of operations follows.

 

 
  Sales (80,000 units × $50 per unit)     $ 4,000,000
  Cost of goods sold        
     Beginning inventory $ 0    
     Cost of goods manufactured (100,000 units × $30 per unit)   3,000,000    
 


   
     Cost of good available for sale   3,000,000    
     Ending inventory (20,000 × $30)   600,000    
 


   
     Cost of goods sold       2,400,000
     


  Gross margin       1,600,000
  Selling and administrative expenses       530,000
     


  Net income     $ 1,070,000
     




 

Additional Information

 

a. Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2.25 per unit in variable selling and administrative expenses.
b. The company’s product cost of $30 per unit is computed as follows.

 

 
  Direct materials $ 5  per unit
  Direct labor $ 14  per unit
  Variable overhead $ 2  per unit
  Fixed overhead ($900,000 / 100,000 units) $ 9  per unit

 

Required:

 

1. Prepare an income statement for the company under variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

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