Question

Required information [The following information applies to the questions displayed below.) 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 0-1,500 units, and monthly production costs for the production of 500 units follow. Morning Dove's utilities and maintenance costs are mixed with the fixed components shown in parentheses. Production Costs Direct materials Direct labor Utilities ($100 fixed) Supervisor's salary Maintenance ($280 fixed) Depreciation Total Cost $1,500 7,500 650 3,000 480 800 Suppose it sells each birdbath for $25. 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.

Answer 1

1) Unit selling price $25.00 Unit variable cost $19.50 Unit contribution margin $5.50 per Bridbath Unit contribution margin $5.50 Unit selling price $25.00 Contribution margin ratio 22.00% I Workings: Production costs Total Direct materials $1,500 Direct labor $7,500 Utilities $650 Supervisor's salary $3,000 Maintenance $480 Depreciation $800 Total product cost $13,930 Number of units produced Variable product cost per unit Selling price per unit Contribution margin per unit Fixed $0 $0 $100 $3,000 $280 $800 $4,180 Variable $1,500 ($1500 - $0] $7,500 [$7500 - $0] $550 ($650 - $100] $0 [$3000 - $3000] $200 ($480 - $280] $0 [$800 - $800] $9,750 500 $19.50 $9750 / 500 units] $25.00 $5.50 [$25.00 - $19.50] Šo

NOTE: Fixed costs are those costs which would remain the same in total irrespective of level of production or sales. It is a committed cost to be incurred by the firm whether it carries out operations or not. Variable costs are those costs which would remain the same per unit irrespective of level of production or sales. It is an unit cost to be incurred by the firm only when the firm carries out its business operation. 21 MORNING DOVE COMPANY Contribution Margin Income Statement Expected for 1,400 Units Sales $35,000 [1400 units x $25.00] Less: Variable costs $27,300 [1400 units x $19.50] Leave this row blank Blank Leave this row blank Blank Contribution Margin $7,700 Less: Fixed costs $4,180 [Ref: Workings in Part-1] Leave this row blank Blank Leave this row blank Blank Net operating income $3,520