Question

E5-4 and E5-5 [LO 5-1, 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 0-2,000 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. Production Conts Direct materials Direct labor Utilities ($140 fixed) Supervisor's salary Maintenance ($340 fixed) Depreciation Total Cost $3,100 7,700 590 2,800 470 800 E5-5 (Algo) Calculating Contribution Margin and Contribution Margin Ratio, Preparing Contribution Margin Income Statement [LO 5-5) Suppose it sells each birdbath for $26. 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 decimal places. Round your contribution margin ratio to 2 decimal places. Enter all amounts as positive values.) = Unit Contribution Margin

Answer 1

solution

Req 1

Unit Contribution Margin :

Sale Price per unit	-	Variable Cost per unit	=	unit Contribution Margin
$ 26	-	$ 7.1125	=	18.8875	per birdbath

Conntribution Margin Ratio:

Unit Contribution margin	/	Sales Price per unit	=	Contribution Margin Ratio
$ 18.8875	/	$ 26	=	72.64	%

working note 1

Variable Cost per unit :

= total variable cost / Total unit produced

= ( Direct material + direct labour + Variable utilities costs +variable maintenence cost ) / 1,600 units

= ( $ 3,100 + 7,700 + 450 + 130 ) / 1,600 units

= $ 11,380 / 1,600 units

= $ 7.1125 per unit

Variable utilities costs = $ 590 - 140 = 450

variable maintenence cost = $ 470 - 340 = 130

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Req 2

Morning Dove Company
Contribution Margin Income Statement
Expected for 1,800 units
Particulars		Amount
Sales revenue ( $ 26 x 1,800 )	$	$ 46,800.00
Less : Variable Costs:
Direct materials ( $ 3,100 x 1,800 / 1,600 )	3,487.50
Direct labour ( $ 7,700 x 1,800 / 1,600 )	8,662.50
Variable production overhead (see WN 2 )	652.5	12,802.50
Contribution margin		33,997.50
Less : Fixed Costs:
Fixed production overhead	480.00
Superviser's salary	2,800.00
Depreciation	800.00	4,080.00
Net Operating Income		29,917.50

working note 2:

Variable Production Overheads :

Variable utilities ( $ 450 x 1,800 / 1,600 )	506.25
Variable Maintenance cost ( 130 x1,800/1,600 )	146.25
Total Variable production overheads	652.5

Working note 3 :

Fixed Production Overheads:

Fixed utilities cost	140.00
Fixed Maintenance cost	340.00
Total Fixed Production Overheads	480.00

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