Morning Dove Company manufactures one model of birdbath, which is very popular.
ID: 2342205 • Letter: M
Question
Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells all units it produces each month. The relevant range is 0–2,400 units, and monthly production costs for the production of 2,000 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.
Production Costs
Total Cost
Direct materials
$
2,100
Direct labor
7,300
Utilities ($120 fixed)
650
Supervisor’s salary
2,800
Maintenance ($280 fixed)
520
Depreciation
800
Suppose it sells each birdbath for $26.
Required:
1. Calculate the unit contribution margin and contribution margin ratio for each birdbath sold. (Round Variable cost per unit to 2 decimal places. Enter all amounts as positive values.)
Sales Price
-
Variable Cost per Unit
=
Unit Contribution Margin
$26.00
per Birdbath
Unit Contribution Margin
/
Sales Price
=
Contribution Margin Ratio
%
2. Complete the contribution margin income statement assuming that Morning Dove produces and sells 2,200 units. (Round your intermediate calculation to two decimal place.)
MORNING DOVE COMPANY
Contribution Margin Income Statement
Expected for 2,200 Units
Sales Revenue
$57,200
Variable Costs
Contribution Margin
Fixed Costs
Net Operating Income
Production Costs
Total Cost
Direct materials
$
2,100
Direct labor
7,300
Utilities ($120 fixed)
650
Supervisor’s salary
2,800
Maintenance ($280 fixed)
520
Depreciation
800
Explanation / Answer
(1)
Sales Price
-
Variable Cost per Unit
=
Unit Contribution Margin
26.00
-
5.085
=
20.915
per Birdbath
Unit Contribution Margin
/
Sales Price
=
Contribution Margin Ratio
20.915
/
26
=
80.44
%
Variable cost per unit :-
Direct Material
2100
Direct Labour
7300
Utilities
530
Maintainance
240
Total (A)
10170
Units (B)
2000
Unit variable cost (A/B)
5.085
(2)
Contribution Margin Income Statement
Expected for 2,200 Units
Sales Revenue
$57,200
Variable Costs (5.085 * 2200)
11187
Contribution Margin
46013
Fixed Costs
(120 + 280 + 2800 + 800)
4000
Net Operating Income
42013
Sales Price
-
Variable Cost per Unit
=
Unit Contribution Margin
26.00
-
5.085
=
20.915
per Birdbath
Unit Contribution Margin
/
Sales Price
=
Contribution Margin Ratio
20.915
/
26
=
80.44
%
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