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Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.00 each. Its variable...

Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.00 each. Its variable cost is $13.30 per house, and its fixed costs total $13,643.30 per year. Hawk currently has the capacity to produce up to 2,300 birdhouses per year, so its relevant range is 0 to 2,300 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,130 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 $28,000 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. Contribution margin income Statement

Sales (In units) 1,130
Selling price per Unit $29
a. Sales [1,130 x $29] $32,770
b. Variable Cost @13,30 per unit

$15,029

[1,130 x $13.30]
c. Contribution margin [a - b] $17,741
d. Fixed Cost

$13,643.30
Net Income (c - d) $4,097.70

2. If the company breaks even, then the total contribution margin will equal to total fixed cost.

Therefore, Total contribution margin = $13,643.30

3. Calculation of Contribution per Unit and Contribution margin ratio:

a. Sale per unit $29
b. Variable Cost per Unit $13.30
c. Contibution margin per unit (a - b) $15.70
Contribution margin ratio (c/a) x 100

54.14%

[$15.70 ÷ $29] x 100


4. Calculation of Break Even Point

Break Even point (In units) = [Fixed cost ÷ Contribution per unit]

= $13,643.30 ÷ $15.70

= 869 Birdhouses

Break even point (In dollars) = [Fixed cost ÷ Contribution margin ratio]

= $13,643.30 ÷ 54.14%

= $25,200.04

5. Calculation of No, of units to be sold to get a profit of $28,000:

Target sales (In units) = [Fixed cost + Desired profit] ÷ Contribution per unit

= [$13,643.30 + $28,000] ÷ $15.70

= 2,652.44 Birdhouses

(But this is beyond the production capacity of 2,300 houses)

ekkarill92 answered 2 years ago
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