Question

Required information points 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 0-2,000 units, and monthly production costs for the production of 1,600 units follow. Morning Dove's utilities and maintenance costs are mixed with the fixed components shown in parentheses. eBook Total Cost $1,900 6,500 Hint Production Costs Direct materials Direct labor Utilities ($120 fixed) Supervisor's salary Maintenance ($330 fixed) Depreciation 560 Print 2,800 480 700 References Suppose it sells each birdbath for $28. 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 1,800 units. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the unit contribution margin and contribution margin ratio for each birdbath sold. (Round Variable cost per unit to 2 Mc Graw Hill Education < Prev 1 of 5 Next >

Answer 1

Selling price per unit = $28.00

If 1,600 units are produced:

Variable cost = Direct materials + Direct labor + Variable utilities + Variable maintenance
Variable cost = $1,900 + $6,500 + $440 + $150
Variable cost = $8,990

Variable cost per unit = Variable cost / Units produced
Variable cost per unit = $8,990 / 1,600
Variable cost per unit = $5.62

Fixed cost = Fixed utilities + Supervisor’s salary + Fixed maintenance + Depreciation
Fixed cost = $120 + $2,800 + $330 + $700
Fixed cost = $3,950

Answer 1.

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $28.00 - $5.62
Contribution margin per unit = $22.38

Contribution margin ratio = Contribution margin per unit / Selling price per unit
Contribution margin ratio = $22.38 / $28.00
Contribution margin ratio = 0.7993 or 79.93%

Answer 2.

MORNING DOVE COMPANY Contribution Margin Income Statement Expected for 1,800 Units Sales (1,800 * $28.00) 50,400 Variable expenses (1,800 * $5.62) $ 10,116 Contribution margin 40,284 Fixed expenses 3,950 Net operating income 36,334 $