Suppose that Adams Company sells a product for $22. Unit costs are as follows: T

Question

Suppose that Adams Company sells a product for $22. Unit costs are as follows:

Total fixed factory overhead is $64,654 per year, and total fixed selling and administrative expense is $38,570.

Refer to the list below for the exact wording of text items within your income statement.

1. Calculate the variable cost per unit and the contribution margin per unit. Round your answers to two decimal places.

2. Calculate the contribution margin ratio and the variable cost ratio.

3. Calculate the break-even units.:

4. Prepare a contribution margin income statement at the break-even number of units. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement.

Adams Company

Contribution Margin Income Statement

At Break-Even Number of Units

1

2

3

4

5

ALSO

Melford Company sold 27,050 units last year at $16.10 each. Variable cost was $11.40, and total fixed cost was $130,660.

Refer to the list below for the exact wording of text items within your income statement.

1. Prepare an income statement for Melford for last year. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Melford Company

Contribution Margin Income Statement

For the Last Year

1

2

3

4

5

2. Calculate the break-even point in units.:

3. Calculate the units that Melford must sell to earn operating income of $12,220 this year.:

Direct materials $1.75 Direct labor 1.40 Variable factory overhead 2.05 Variable selling and administrative expense 1.84

Explanation / Answer

1 Variable cost per unit = 1.75 + 1.40 + 2.05 + 1.84

= 7.04

Contribution margin per unit = 22 - 7.04

= 14.96

2. Contribution margin ratio = 14.96/22 x 100 = 68%

Variable cost ratio = 7.04/22 x 100 = 32%

3. Total fixed cost = 64654 + 38570 = 103224

Break even units = Fixed cost / Contribution per unit

= 103224/14.96

= 6900 units

4. Adams company

Contrbution margin income statement

At breal even number of units

Sales (6900 x 22) 151800 Less: Variable cost (6900 x 7.04) 48576 Contrbution margin 103224

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