Question

E5-3 Calculating Contribution Margin and Contribution Ratio, Preparing Contribution Margin Income Statement [LO 5-5] 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 0-2,200 units, and monthly production costs for the production of 1,800 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 ($100 fixed) Supervisor's salary Maintenance ($320 fixed) Depreciation Total Cost $ 2,700 7,500 560 3,200 530 750 Suppose it sells each birdbath for $26. Required: 1. Calculate the unit contribution margin and contribution margin ratio for each birdbath sold. (Round Variable cost per unit to 2 decimal places. Enter all amounts as positive values.) = Unit Contribution Margin per Birdbath | = Contribution Margin Ratio

Answer 1

Solution 1:

Variable cost per unit = ($2,700 + $7,500 + $460 + $210) / 1800 = $6.04 per unit

Contribution margin per unit = Selling price - Variable cost = $26 - $6.04 = $19.96 per unit

Contribution margin ratio = CM per unit / Selling price per unit = $19.96 / $26 = 76.77%

Solution 2:

Morning Dove Company
Contribution margin income statement
Expected for 2000 units
Particulars	Amount
Sales (2000*$26)	$52,000
Variable costs:
Direct materials	$3,000
Direct labor	$8,333
Utilities	$511
Maintenance	$233
Contribution margin	$39,922
Fixed costs:
Utilities	$100
Supervisory salary	$3,200
Maintenance	$320
Depreciation	$750
Net income	$35,552