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 0–1,700 units, and monthly production costs for the production of 1,200 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.  

Production Costs	Total Cost
Direct materials	$	2,300
Direct labor		7,100
Utilities ($120 fixed)		630
Supervisor’s salary		3,100
Maintenance ($300 fixed)		470
Depreciation		750

Suppose it sells each birdbath for $28.

Required:

1. Calculate the unit contribution margin and contribution margin ratio for each birdbath sold.

2. Complete the contribution margin income statement assuming that Morning Dove produces and sells 1,400 units.

Answer 1

1)			Total	Number of units	Per unit
	Sale price		33600	1200	$    28.00
	Less:
	Variable cost
	Direct materials	$	2,300	1200	$       1.92
	Direct labor		7,100	1200	$       5.92
	Utilities		510	1200	$       0.43
	Maintenance		170	1200	$       0.14
	Contribution Margin				$    19.60
	Contribution Margin Ratio				70.00%
2)	contribution margin income statement
		Per unit	Number of units	Total
	Sale Revenue	$    28.00	1400	$ 39,200.00
	Less:
	Variable cost
	Direct materials	$       1.92	1400	$    2,683.33
	Direct labor	$       5.92	1400	$    8,283.33
	Utilities	$       0.43	1400	$        595.00
	Maintenance	$       0.14	1400	$        198.33
	Contribution Margin	$    19.60		$ 27,440.00
	Less: Fixed Cost
	Utilities			$              120
	Maintenance			$              300
	Depreciation			$              750
	Operating income			$ 26,270.00