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	$	2,700
Direct labor		7,300
Utilities ($140 fixed)		570
Supervisor’s salary		2,800
Maintenance ($330 fixed)		490
Depreciation		850
Suppose it sells each birdbath for $30. 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.

Required 1 Required 2 Calculate the unit contribution margin and contribution margin ratio for each birdbath sold. (Round Variable cost per unit to 2 decimal places. Round your contribution margin ratio to 2 decimal places. Enter all amounts as positive values.) = Unit Contribution Margin per Bird bath = Contribution Margin Ratio < Required 1 Required 2 > Required 1 Required 2 Complete the contribution margin income statement assuming that Morning Dove produces and sells 1,400 units. (Round your intermediate calculation to 2 decimal places.) MORNING DOVE COMPANY Contribution Margin Income Statement Expected for 1,400 Units Contribution Margin Net Operating Income < Required 1 Required 2 >

Answer 1

Ans:

Direct material cost per unit ($2,700/1,200)	$ 2.25
Direct labour cost per unit ($7,300/1,200)	$ 6.08
Utilities expense per unit (($570-$140)/1,200)	$ 0.36
Maintenance cost per unit (($490-$330)/1,200)	$ 0.13
Variable cost per unit	$ 8.82

1.

Sales revenue	-	Variable costs	=	Contribution margin
$30	-	$8.82	=	$21.18

Contribution margin	/	Sales revenue	=	Contribution margin ratio
$21.18	/	$30	=	70.60%

2.

MORNING DOVE COMPANY
Contribution margin income statement
Expected for 1400 units
Sales revenue ($30*1400)	$ 42,000
Less: Variable costs ($8.82*1400)	$ 12,348
Contribution margin	$ 29,652
Less: Fixed costs ($140+$2800+$330+$850)	$  4,120
Net operating income	$ 25,532

Hope this helped ! Let me know in case of any queries.