Question

In: Accounting

Hawk Homes, Inc., makes one type of birdhouse that it sells for $31.00 each. Its variable...

Hawk Homes, Inc., makes one type of birdhouse that it sells for $31.00 each. Its variable cost is $14.50 per house, and its fixed costs total $14,124.00 per year. Hawk currently has the capacity to produce up to 2,100 birdhouses per year, so its relevant range is 0 to 2,100 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,180 birdhouses this year.

2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even.

3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio.

4. Calculate Hawk’s break-even point in number of units and in sales revenue.

5. Suppose Hawk wants to earn $27,000 this year. Determine how many birdhouses it must sell to generate this amount of profit.

Using the degree of operating leverage, calculate the change in profit caused by a 5 percent increase in sales revenue. (Round your intermediate values to 2 decimal places. (i.e. 0.1234 should be entered as 12.34%.))

Effect on Profit

Prepare a contribution margin income statement for Hawk assuming it sells 1,180 birdhouses this year. (Enter your answers rounded to 2 decimal places.)

HAWK HOMES, INC.
Contribution Margin Income Statement




Contribution Margin



Income from Operations

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

Total Contribution Margin

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%.))


Unit Contribution Margin
Contribution Margin Ratio		%

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.)


Break-Even Units		Units
Break-Even Sales Revenue

Suppose Hawk wants to earn $27,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. (Round your answer to the nearest whole number.)

Target Unit Sales

Units

Solutions

Expert Solution

Answer to Requirement 1:

Answer to Requirement 2:

Total Contribution Margin = Fixed Expenses
Total Contribution Margin = $14,124

Answer to Requirement 3:

Contribution Margin per unit = Selling Expense per unit - Variable Cost per unit
Contribution Margin per unit = $31.00 - $14.50
Contribution Margin per unit = $16.50

Contribution Margin Ratio = Contribution Margin per unit / Selling Expense per unit
Contribution Margin Ratio = $16.50 / $31.00
Contribution Margin Ratio = 0.5323 or 53.23%

Answer to Requirement 4:

Breakeven Point in units = Fixed Expenses / Contribution Margin per unit
Breakeven Point in units = $14,124 / $16.50
Breakeven Point in units = 856

Breakeven Point in dollars = Fixed Expenses / Contribution Margin Ratio
Breakeven Point in dollars = $14,124 / 0.5323
Breakeven Point in dollars = $26,533.91

Breakeven Point in dollars = Breakeven Point in units * Selling Price per unit
Breakeven Point in dollars = 856 * $31.00
Breakeven Point in dollars = $26,536.00

Answer to Requirement 5:

Target Unit Sales = (Fixed Expenses + Target Profit) / Contribution Margin per unit
Target Unit Sales = ($14,124 + $27,000) / $16.50
Target Unit Sales = 2,492.36 or 2,492

ekkarill92 answered 1 year ago

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