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 0–2,300 units, and monthly production costs for the production of 1,900 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.

Production Costs	Total Cost
Direct materials	$	3,100
Direct labor		7,500
Utilities ($130 fixed)		590
Supervisor’s salary		2,800
Maintenance ($330 fixed)		480
Depreciation		700

Suppose it sells each birdbath for $28.

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 2,100 units. (Round your intermediate calculation to two decimal place.

	MORNING DOVE COMPANY Contribution Margin Income Statement Expected for 2,100 Units Contribution Margin Net Operating Income

Answer 1

Requirement 1

	Per Unit	Total at 1900 units
Sales	$    28.00	$ 53,200.00
Less: Variable Costs
Direct material	$       1.63	$     3,100.00
Direct labor	$       3.95	$     7,500.00
Utilities (590-130)	$       0.24	$        460.00
Maintenance (480-330)	$       0.08	$        150.00
Total Variable Cost	$       5.90	$ 11,210.00
Contribution margin	$    22.10	$ 41,990.00
Contribution margin ratio		78.93%

Contribution margin per Birdbath =$22.10

Contribution margin ratio=78.93% or 79%

.

Requirement 2

MORNING DOVE COMPANY
Contribution Margin Income Statement
Expected for 2,100 Units
Sales Revenue	$ 58,800.00
Less: Variable Cost
Direct material	$   3,426.32
Direct labor	$   8,289.47
Utilities	$      508.42
Maintenance	$      165.79
Total Variable Cost	$ 12,390.00
Contribution Margin	$ 46,410.00
Fixed Costs
Utilities	$      130.00
Supervisor's Salary	$   2,800.00
Maintenance	$      330.00
Depreciation	$      700.00
Total Fixed cost	$   3,960.00
Net Operating Income	$ 42,450.00