Question

Hawk Homes, Inc., makes one type of birdhouse that it sells for $31.70 each. Its variable cost is $15.00 per house, and its fixed costs total $14,428.80 per year. Hawk currently has the capacity to produce up to 2,500 birdhouses per year, so its relevant range is 0 to 2,500 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,150 birdhouses this year. (Enter your answers rounded to 2 decimal places.)



2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even. (Enter your answers rounded to 2 decimal places.)



3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio. (Round your answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))



4. Calculate Hawk’s break-even point in number of units and in sales revenue. (Round your "Sales Revenue" answer to 2 decimal places and "Unit" answer to the nearest whole number.)



5. Suppose Hawk wants to earn $24,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. (Round up to the next whole number.)

Answer 1

1.

Sales(1150*31.7)	36455
Less: Variable Cost (1150*15)	17250
Contribution Margin	19205
Less: Fixed Costs	14428.8
Net Income	4776.2

2. Break even is a situation where the company is in no profit no loss situation.

Contribution Margin to break even = Fixed Costs = $14428.8

3. Contribution per unit = Selling price per unit - Variable Cost per unit

= 31.7- 15 = $16.7

Contribution margin ratio = (16.7/31.7) *100 = 52.68%

4. Break even point (in units) = Fixed Costs / Contribution per unit

= 14428.8/16.7 = 864 units

In Sales revenue = 864*31.7 = 27388.8

5. Sales requried to earn profit of 24000 = (Fixed costs + Desired profit)/Contribution per unit

= (14428.8+24000)/16.7

= 2302 units ( rounded off)