Question

E5-19 (Algo) Calculating Contribution Margin and Contribution Ratio, Preparing Contribution Margin Income Statement [LO 5-5] Riverside Inc. makes one model of wooden canoe. Partial information for it follows: 450 650 800 Number of Canoes Produced and Sold Total costs Variable costs Fixed costs Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit $ 72,000 187,200 $259,200 $ 104,000 187,200 $ 291, 200 $ 128,000 187,200 $315,200 $ 160.00 416.00 $ 576.00 $ 160.00 288.00 $ 448.00 $ 160.00 234.00 $ 394.00 Riverside sells its canoes for $680 each. Next year Riverside expects to sell 1,000 canoes. Required: Complete the Riverside's contribution margin income statement for each independent scenario. Assuming each scenario is a variation of Riverside's original data. (Round your unit contribution margin and contribution margin ratio to 2 decimal places (i.e. 1234 should be entered as 12.34%) and all other answers to the nearest dollar amount.) Scenario 1 Raises Sales Price to $780 per Canoe Scenario 3 Decrease Fixed Cost by 20 Percent Scenario 2 Increase Sales Price and Variable Cost per Unit by 10 Percent $ 572.00 76.47% $ 440.00 Unit Contribution Margin Contribution Margin Ratio 520.00 79.48% 64.71% Contribution Margin Income Statement Sales Revenue $ 680,000 Variable Costs Contribution Margin Fixed Costs Net Operating Income

Answer 1

**Variable Costs: Variable costs are those cost that are incurred by the firm as a result of the use of variable factor inputs. They are dependent of the level of input.

**Fixed Costs: Fixed costs are those cost that are incurred as a result of the use of fixed factor inputs, It remains fixed at any level of output in the short run.

SP raises to $780 Decrease fixed cost by 20% Increase sales price and Variable cost by 10% Scenario 2 572 76.47% Workings: Unit Contribution Margin Contribution Margin Ratio Scenario 1 620 79.49% Scenario 3 520 76.47% Unit Contribution Margin Contribution Margin Ratio Scenario 1 $780-$160 $620 / $780 Scenario 2 ($680+10%)-($160+10%) $572 / $748 Scenario 3 $680-$160 $520 / $680 Contribution Margin Income Statement Scenario 1 Scenario 2 Scenario 3 Sales Revenue $ 780,000 $ 748,000 $ 680,000 Variable Costs $ 160,000 $ 176,000 $ 160,000 Contribution Margin $ 620,000 $ 572,000 $ 520,000 Fixed Costs $ 187,200 $ 187,200 $ 187,200 Net Operating Income $ 432,800 $ 384,800 $ 332,800 Sales Revenue Variable Costs Contribution Margin Fixed Costs Net Operating Income Contribution Margin Income Statement Scenario 1 Scenario 2 Scenario 3 $780*1000 ($680*110%)*1000 $680*1000 $160*1000 (160*110%)*1000 $160*1000 Sales Revenue - Variable Cost Sales Revenue - Variable Cost Sales Revenue - Variable Cost Given Given Given CM - Fixed Costs CM - Fixed Costs CM - Fixed Costs

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