Question

Required information 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 0-1,900 units, and monthly production costs for the production of 1,400 units follow. Morning Dove's utilities and maintenance costs are mixed with the fixed components shown in parentheses. Production Costs Direct materials Direct labor Utilities ($110 fixed) Supervisor's salary Maintenance ($310 fixed) Depreciation Total Cost $ 2,500 7, 700 640 3, 100 520 900 Suppose it sells each birdbath for $22. 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 1,600 units.

Answer 1

Ans:

Ans:

Direct material cost ($2,500)	$ 2,500.00
Direct labour cost ($7,700)	$ 7,700.00
Utilities expense (($640-$110))	$ 530.00
Maintenance cost (($520-$310))	$ 210.00
Total Variable cost	$ 10,940.00
Variable cost (10940/1400)	$ 7.81

1.

Sales revenue	-	Variable costs	=	Contribution margin
$22	-	$7.81	=	$14.19

Contribution margin	/	Sales revenue	=	Contribution margin ratio
$14.19	/	$22	=	64.50%

2.

MORNING DOVE COMPANY
Contribution margin income statement
Expected for 1600 units
Sales revenue ($22*1600)	$ 35200
Less: Variable costs ($7.81*1600)	$ 12,496
Contribution margin	$ 22704
Less: Fixed costs ($110+$3100+$310+$900)	$  4,420
Net operating income	$ 18,284

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