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 0–1,900 units, and monthly production costs for the production of 1,600 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.

Production Costs	Total Cost
Direct materials	$	1,500
Direct labor		7,300
Utilities ($150 fixed)		560
Supervisor’s salary		3,400
Maintenance ($300 fixed)		540
Depreciation		750

Suppose it sells each birdbath for $22.

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.)



2. Complete the contribution margin income statement assuming that Morning Dove produces and sells 1,800 units. (Round your intermediate calculation to two decimal place.)

Answer 1

	Total cost	Total variable cost	Total Fixed cost
Direct materials	1500	1500
Direct labor	7300	7300
Utilities	560	410	150
Supervisor's salary	3400		3400
Maintenance	540	240	300
Depreciation	750		750
Total		9450	4600

Variable cost per unit = Total variable cost / Units produced = 9450 / 1600

5.91

Required 1:
Sales price	-	Variable cost per unit	=	Unit contribution margin
22	-	5.91	=	16.09	per birdbath
Unit contribution margin	/	Sales price	=	Contribution margin ratio
16.09	/	22	=	73%

Required 2 :
Contribution margin income statement
Sales revenue ( 22 * 1800 )	39600
Variable costs ( 5.91 * 1800 )	10638
Contribution margin	28962
(-) Fixed costs	4600
Net operating income	24362