Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point, Target Profit
Cardinal Castles, Inc., makes one type of birdhouse that it sells for $30 each. Its variable cost is $14 per house, and its fixed costs total $13,840 per year. Cardinal currently has the capacity to produce up to 2,000 birdhouses per year, so its relevant range is zero to 2,000 houses.
Required:
1.Prepare a contribution margin income statement for Cardinal assuming it sells 1,100 bird- houses this year.
2.Without any calculations, determine Cardinal’s total contribution margin if the company breaks even.
3.Calculate Cardinal’s contribution margin per unit and its contribution margin ratio.
4.Calculate Cardinal’s break-even point in number of units and in sales dollars.
5.Suppose Cardinal wants to earn $20,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. Is this possible?
6.Prepare a cost-volume-profit graph for Cardinal including lines for both total cost and sales revenue. Clearly identify fixed cost and the break-even point on your graph.
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