Question

Che 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 0-1,600 units, and monthly production costs for the production of 1,100 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 ($120 fixed) Supervisor's salary Maintenance ($290 fixed) Depreciation Total Cost $ 1,700 7,100 580 3,200 470 900 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 units.

Answer 1

Unit contribution margin = Unit selling price – unit variable cost

= 22-(1700+7100+460+180)/1100

= $13.42 per unit

CM Ratio = CM/Sales

= 13.42/22

= 61%

Contribution Margin Income Statement

Sales Revenue = 1300*22 = $28,600

Less: Variable Costs 1300*8.58 = $11,154

Contribution Margin = $17,446

Less: Fixed costs 120+290+3200+900 = $4510

Net Operating income = $12,936

Note that fixed costs do not change within the relevant range