Morning Dove Company owner Slyvester believes that he can sell 2000 birdbaths du

Question

Morning Dove Company owner Slyvester believes that he can sell 2000 birdbaths during the a net opemonth of April and has predicted a net operating income of $6820 as shown in the following contribution margin statement.

MORNING DOVE COMPANY

Contribution Margin Income Statement

Expected for $2,000 units

Sales Revenue ( $2,000x$ 25.00) 50,000-39,000=11,000-4180=6820

Less Variable cost ( 2,000x$ 19.50)

Contribution Margin( 2,000x5.50)

Less Fixed Cost

Net operating cost

1. Explain to Sylvester why his prediction is incorrect . Be specific about hisincorrect assumption and give him as much detail as possible about what the accurate contribution margin statement would show

Production Cost Total Cost Direct Material 1,500 Direct Labor 7500 Utilities( $100 fixed) 650 Supervisiors Salary 3000 Maintenence( $280 fixed) 480 Depreciation 800

Explanation / Answer

Assumption is taken that the relevant range for comparison of similar company and its range is assumed to be 0-1500 units.

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