Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.00 each. Its

Question

Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.00 each. Its variable cost is $13.30 per house, and its fixed costs total $13,643.30 per year. Hawk currently has the capacity to produce up to 2,300 birdhouses per year, so its relevant range is 0 to 2,300 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,130 birdhouses this year. (Enter your answers rounded to 2 decimal places.)



2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even. (Enter your answers rounded to 2 decimal places.)



3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio. (Round your answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))



4. Calculate Hawk’s break-even point in number of units and in sales revenue. (Round your "Sales Revenue" answer to 2 decimal places and "Unit" answer to the nearest whole number.)



5. Suppose Hawk wants to earn $28,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. (Round up to the next whole number.)

Explanation / Answer

1. Contribution margin income Statement

$15,029

[1,130 x $13.30]

$13,643.30

2. If the company breaks even, then the total contribution margin will equal to total fixed cost.

Therefore, Total contribution margin = $13,643.30

3. Calculation of Contribution per Unit and Contribution margin ratio:

54.14%

[$15.70 ÷ $29] x 100

4. Calculation of Break Even Point

Break Even point (In units) = [Fixed cost ÷ Contribution per unit]

= $13,643.30 ÷ $15.70

= 869 Birdhouses

Break even point (In dollars) = [Fixed cost ÷ Contribution margin ratio]

= $13,643.30 ÷ 54.14%

= $25,200.04

5. Calculation of No, of units to be sold to get a profit of $28,000:

Target sales (In units) = [Fixed cost + Desired profit] ÷ Contribution per unit

= [$13,643.30 + $28,000] ÷ $15.70

= 2,652.44 Birdhouses

(But this is beyond the production capacity of 2,300 houses)

Sales (In units) 1,130 Selling price per Unit $29 a. Sales [1,130 x $29] $32,770 b. Variable Cost @13,30 per unit

$15,029

[1,130 x $13.30]

c. Contribution margin [a - b] $17,741 d. Fixed Cost

$13,643.30

Net Income (c - d) $4,097.70

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