Question

PA6-3 (Algo) Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point, Target Profit [LO 6-1, 6-2) Hawk Homes, Inc., makes one type of birdhouse that it sells for $30.50 each. Its variable cost is $13.80 per house, and its fixed costs total $14,462.20 per year. Hawk currently has the capacity to produce up to 2,200 birdhouses per year, so its relevant range is O to 2.200 houses. Required: 1. Prepare a contribution margin income statement for Hawk assumingit sells 1,110 birdhouses this year. 2. Without any calculations, determine Hawk's total contribution margin if the company breaks even. 3. Calculate Hawk's contribution margin per unit and its contribution margin ratio. 4. Calculate Hawk's break even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $23,000 this year. Determine how many birdhouses it must sell to generate this amount of profit Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. (Enter your answers rounded to 2 decimal places.) HAWK HOMES, INC. Contribution Margin Income Statement

Answer 1

Answer (1) per unit a Total a X 1,110 houses Sales revenue A $ 30.50 $ 33,855.00 Variable costs B $13.80 $ 15,318.00 Contribution margin CEA-B $ 16.70 $ 18,537.00 Fixed costs $ 14,462.20 Net Income E=C-D $ 4,074.80 Answer (2) If Company breaks even, then its Contribution margin equals to Fixed. Company's Fixed cost is $ 14,462.20 So, Companys Contribution on breaks even is $ 14,462.20 Answer (3) Hawk's Contribution margin per unit Contribution margin per unit = Sales per unit - Variable cost per unit Contribution margin per unit = $ 30.50 - $13.80 Contribution margin per unit = $ 16.70 Hawk's Contribution margin ratio Contribution margin ratio = ( Contribution margin per unit + Sales per unit) x 100 Contribution margin ratio = ( $ 16.70 + $ 30.50 ) x 100 Contribution margin ratio = 54.7541% or 54.75% Answer (4) Break even point in number of units = Fixed cost Contribution margin per unit = $ 14,462.20 - $ 16.70 = 866 units Break even point in sales revenue = Fixed cost + Contribution margin ratio = $ 14,462.20 + 54.7541% = $ 26,413 Answer (5) No. of birds houses need to sell to get desired profit of $ 23,000 = (Desired profit + Fixed cost ) - Contribution margin per unit = ($ 23,000 + $ 14,462.20 ) +$ 16.70 = ($ 37,462.20 ) = $16.70 = 2243.24 units To earn desired profit of $ 23,000, Hawk has to sell 2243.24 units (or) 2244 bird houses