Morning Dove Company manufactures one model of birdbath, which is very popular.

Question

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 0-2,200 units, and monthly production costs for the production of 1,800 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 ($130 fixed) Supervisor's salary Maintenance ($340 fixed) Depreciation Total Cost $1,900 7,700 580 3,400 510 750 Suppose it sells each birdbath for $26 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

Explanation / Answer

Calculation of fixed and variable costs Variabl costs Fixed costs Direct material 1900 Direct labor 7700 Utilities 450 130 Supervisor salry 3400 Maintenance 170 340 Depreciation 750 Total 10220 4620 Units 1800 Unitvariable cost 5.68 Selling price per unit - Variable cost per unit = Unit contribution marin 26 - 5.68 = 20.32 Contribution margin per unit / Selling price per unit = Contribution margin Ratio 20.32 / 26 = 78.15 % Contribution margin Income Statement Sales 52000 Less: Variable costs 11360 Contribution margin 40640 Less: Fixed cost 4620 Net Operating Income 36020

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