E5-16 Calculating Contribution Margin and Contribution Ratio, Preparing Contribu

Question

E5-16 Calculating Contribution Margin and Contribution Ratio, Preparing Contribution Margin Income Statement [L5-5] Riverside Inc. makes one model of wooden cance. Partial information for it folows Number of Canoes Produced and Sold550 750900 Total costs Variable costs Fixed costs $112,750 153,70 184,500 148,500 148,500 B.500 Total cos1 Cost per unit S261,250 302,250 333,000 ar able cost per unit Fixed cost per unit S 205.00 205.00 205.00 27000 198 00 165 00 S 475.00 S 403.00 370.00 Tolal aost per unit Riverside sells its canoes for $550 each. Next year Riverside expects to sell 1,000 canoes. Required: Complete the Riverside's contribution margin income statement for each independent scanario. Assuming each scenario is a variation of Riverside's original data. (Round your unit contribution margin and contribution margin ratlo to two decimal places (i.e. .1234 should be entered as 12.34%) and all other answers to the nearest dollar amounL Scenario 1 Raises Sales Price to $650 per Canoe Scenario 2 Increase Sales Price and Variable Cost per Unit by 10 Percent Scenario 3 Decrease Fixed Cost by 20 Percent Unit Contribution Margn Contribution Margin Ratio Contibution Margn Ne1 Operating Income

Explanation / Answer

Scenario 1 Selling price 650 Less: Variable costs 205 Unit contribution margin 445 Contribution margin ratio 68.46% =445/650 Scenario 2 Selling price 605 =550*1.1 Less: Variable costs 225.5 =205*1.1 Unit contribution margin 379.5 Contribution margin ratio 62.73% =379.5/605 Scenario 3 Selling price 550 Less: Variable costs 205 Unit contribution margin 345 Contribution margin ratio 62.73% =345/550 Scenario 1 Scenario 2 Scenario 3 Unit contribution margin 445 379.5 345 Contribution margin ratio 68.46% 62.73% 62.73% Contribution Margin Income Statement Sales 650000 605000 550000 Less: Variable expenses 205000 225500 205000 Contribution margin 445000 379500 345000 Less: Fixed expenses 148500 148500 118800 Net operating income 296500 231000 226200

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