Question

Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.90 each. Its variable cost is $13.60 per house, and its fixed costs total $14,034.30 per year. Hawk currently has the capacity to produce up to 2,700 birdhouses per year, so its relevant range is 0 to 2,700 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,190 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 $26,000 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 Revenue(29.9*1190)	$35581
Variable costs(13.6*1190)	$16184
Contribution margin	$19397
Fixed Costs	$14034.30
Income from operations	$5362.70

2.At breakeven;Contribution margin=Fixed costs=$14034.30

3.Contribution margin per unit=Sales revenue-Variable cost

=(29.9-13.6)=$16.3 per unit

Contribution margin ratio=Contribution margin/Sales revenue

=(16.3/29.9)=54.52%(Approx).

4.Breakeven point=Fixed cost/Contribution margin

(14034.3/16.3)=861 units

=(861*29.9)=$25743.90

5.Required Contribution margin=Fixed cost+Target profits

=(14034.30+26000)=$40034.30

Hence birdhouses to be sold=$40034.30/$16.3

=2456 (Approx).