Question

In: Accounting

Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.60 each. Its variable...

Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.60 each. Its variable cost is $13.90 per house, and its fixed costs total $13,611.90 per year. Hawk currently has the capacity to produce up to 2,500 birdhouses per year, so its relevant range is 0 to 2,500 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,240 birdhouses this year. (Enter your answers rounded to 2 decimal places.)



2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even. (Enter your answers rounded to 2 decimal places.)



3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio. (Round your answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))



4. Calculate Hawk’s break-even point in number of units and in sales revenue. (Round your "Sales Revenue" answer to 2 decimal places and "Unit" answer to the nearest whole number.)



5. Suppose Hawk wants to earn $22,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. (Round up to the next whole number.)

Solutions

Expert Solution

1.

Hawk Homes, Inc.,

Contribution margin income statement

Sales revenues (1,240*$29.60) $36,704
Less : Variable costs (1,240*$13.90) $17,236
Contribution margin $19,468
Less : Fixed costs $13,611.90
Net operating income $5,856.1

2.

At the breakeven, Contribution margin equals fixed costs.

Contribution margin = $13,611.90

3.

Contribution margin per unit = Selling price per unit - Variable costs per unit

= $29.60 - $13.90

= $15.7

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= $15.7 / $29.6

= 53.04%

4.

Breakeven point in number of units = Fixed costs / Contribution margin per unit

= $13,611.90 / $15.7

= 867

Breakeven point in sales revenue = Fixed costs / Contribution margin ratio

= $13,611.90 / 53.04%

= $25,663.46

5.

Unita to be sold = (Fixed costs + Desired profit) / Contribution margin per unit

= ($13,611.90 + $22,000) / $15.7

= 2,268 units

ekkarill92 answered 2 years ago
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