Question

Riverside Inc. makes one model of wooden canoe. Partial information for it follows:

Number of Canoes Produced and Sold
		470		620		770
Total costs
Variable costs	$	64,390		?		?
Fixed costs		149,300		?		?
Total costs	$	213,690		?		?
Cost per unit
Variable cost per unit		?		?		?
Fixed cost per unit		?		?		?
Total cost per unit		?		?		?

Required:
1. Complete the table. (Round your cost per unit answers to 2 decimal places.)   



3. Suppose Riverside sells its canoes for $515 each. Calculate the contribution margin per canoe and the contribution margin ratio. (Round your contribution margin to the nearest whole dollar and your contribution margin ratio to the nearest whole percent.)


4. Next year Riverside expects to sell 820 canoes. Complete the contribution margin income statement for the company.

Answer 1

1	Canoes produced and sold	470 units	620 units	770 units
	Total cost
	Variable cost	$     64,390	$           84,940	$       1,05,490
	Fixed cost per year	$ 1,49,300	$       1,49,300	$       1,49,300
	Total costs	$ 2,13,690	$       2,34,240	$       2,54,790
	Costs per unit
	Variable cost per unit	$     137.00	$           137.00	$           137.00
	Fixed cost per unit	$     317.66	$           240.81	$           193.90
	Total cost per unit	$     454.66	$           377.81	$           330.90
	Workings:
	470 units
	Variable cost per unit	=	$1,25,000 /470 units
		=	$           137.00
	Variable cost per unit	=	$149300 / 470 units
		=	$           317.66
	Fixed cost per unit	=	$149300/470 units
		=	$           317.66
	620 units
	Total Variable cost	=	620 units X $137
		=	$     84,940.00
	Fixed cost per unit	=	$149300/620 units
		=	$           240.81
	770 units
	Total Variable cost	=	770 units X $137
		=	$ 1,05,490.00
	Fixed cost per unit	=	$149300/770 units
		=	$           193.90
	Note: Fixed cost per year will remain same irrespective of number units whereas it will change in case of Fixed cost per unit also Variable cost per unit will remain same and it will change in total.
3		470 units	620 units	770 units
	Total contribution margin	$ 1,77,660	$       2,34,360	$       2,91,060
	Contribution margin ratio	73.40%	73.40%	73.40%
	Workings:	units
		470	620	770
(a)	Sales (units X $515)	$ 2,42,050	$       3,19,300	$       3,96,550
Less:	Variable cost	$     64,390	$           84,940	$       1,05,490
(b)	Total contribution margin	$ 1,77,660	$       2,34,360	$       2,91,060
	Contribution margin ratio [(b)/(a)]	73.40%	73.40%	73.40%
4		820 units
(a)	Sales (units X $515)	$ 4,22,300
Less:	Variable cost (820 units X $137)	$ 1,12,340
(b)	Total contribution margin	$ 3,09,960
Less:	Fixed cost per year	$ 1,49,300
	Net operating Income (loss)	$ 1,60,660