Question

E5-3 Calculating Contribution Margin and Contribution Ratio, Preparing Contribution Margin Income Statement [LO 5-5]

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 0–2,500 units, and monthly production costs for the production of 2,200 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.

Production Costs	Total Cost
Direct materials	$	1,500
Direct labor		6,700
Utilities ($130 fixed)		620
Supervisor’s salary		2,600
Maintenance ($310 fixed)		520
Depreciation		850

Suppose it sells each birdbath for $22.

Required:
1. Calculate the unit contribution margin and contribution margin ratio for each birdbath sold. (Round Variable cost per unit to 2 decimal places. Enter all amounts as positive values.)

			=	Unit Contribution Margin
					per Birdbath
			=	Contribution Margin Ratio
					%

2. Complete the contribution margin income statement assuming that Morning Dove produces and sells 2,400 units. (Round your intermediate calculation to two decimal place.)

Answer 1

1. Calculate the unit contribution margin and contribution margin ratio for each birdbath sold.

	Sales per unit - Variable cost per unit = Unit Contribution Margin 22 - 4.05 = 17.95 per Birdbath Contribution margin per unit / Sale price per unit = Contribution Margin Ratio 17.95 / 22 81.59 %

2. Complete the contribution margin income statement assuming that Morning Dove produces and sells 2,400 units

Sales (2400*22)	52800
Less: Variable cost (2400*4.05)	(9720)
Contribution margin	43080
Fixed expense	(3890)
Net operating income	39190