PA6-3 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Poi
ID: 2541964 • Letter: P
Question
PA6-3 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point, Target Profit [LO 6-1 ,6-2] Hawk Homes, Inc., makes one type of birdhouse that it sells for $30.40 each. Its variable cost is $14.40 per house, and its fixed costs total $13,744.00 per year. Hawk currently has the capacity to p up to 2,900 birdhouses per year, so its relevant range is 0 to 2,900 houses. Required 1. Prepare a contribution margin income statement for Hawk assuming it sells 1,170 birdhouses this year. (Enter your answers rounded to 2 decimal places.) HAWK HOMES, INO. Contribution Margin Income Statement Contribution Margin Income from Operations 2. Without any calculations, determine Hawk's total contribution margin if the company breaks even. (Enter your answers rounded to 2 decimal Show ntoday 1-1jpg Monday Today 1-2.jpg 3/12/2018 “ Today 2-1.jpg ne here to searchExplanation / Answer
1.
2. Total Contribution Margin if company Breaks even
Breakeven point in units = Fixed Cost / (Selling Price - Variable cost)
= $13,744 / ($30.40 - $14.40) = 859 units
Total Contribution Margin at break even = 859 units x $16 = $13,744
3. Contribution Margin per unit = Selling price per unit - Variable cost per unit
= $30.40 - $14.40 = $16
Contribution Margin Ratio = (Contribution Margin / Selling Price) x 100
= ($16 / $30.40) x 100 = 52.63%
4. Break even point in units = Fixed Cost / (Selling Price - Variable cost)
= $13,744 / ($30.40 - $14.40) = 859 units
Break even Sales Revenue = $30.40 x 859 units = $26,113.60
5. Target Unit Sales = ( Fixed Cost + Desired Profit) / Contribution Margin per unit
= ( $13,744 + $21,000 ) / $16
= 2172 units
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Contribution Margin Statement Total Sales $35,568 Less : Variable Cost $16,848 Contribution Margin $18,720 Less : Fixed Cost $13,744 Income from Operations $4,976Related Questions
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