Question

E6-5 Calculating Contribution Margin and Contribution Margin Ratio; Identifying Break-Even Point, Target Profit [LO 6-1, 6-2]

Sandy Bank, Inc., makes one model of wooden canoe. Partial information for it follows:

Required:
1. Complete the following table. (Round your "Cost per Unit" answers to 2 decimal places.)

	Number of Canoes Produced and Sold 420 610 730 Total costs Variable Costs $61,740 Fixed Costs 142,380 Total Costs $204,120 Cost per Unit Variable Cost per Unit Fixed Cost per Unit Total Cost per Unit

2. Suppose Sandy Bank sells its canoes for $500 each. Calculate the contribution margin per canoe and the contribution margin ratio. (Round your intermediate calculations and final answers to 2 decimal places. Round your "percentage" answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

	Unit Contribution Margin per Canoe Contribution Margin Ratio %

3. This year Sandy Bank expects to sell 800 canoes. Prepare a contribution margin income statement for the company. (Round your intermediate calculations to 2 decimal places.)

	SANDY BANK, Inc. Contribution Margin Income Statement For the Current Year Contribution Margin Income from Operations

4. Calculate Sandy Bank’s break-even point in units and in sales dollars. (Round final answers to the nearest whole number).

	Break-Even Units Canoes Break-Even Sales Revenue

5. Suppose Sandy Bank wants to earn $78,000 profit this year. Calculate the number of canoes that must be sold to achieve this target. (Round Unit Contribution Margin to 2 decimal places. Round your answer to the next whole number.)

	Target Sales Units Canoes

Answer 1

** Note : Fixed cost does not change with change in the level of output so, the total fixed cost will remain $142380 only for the question. But, but per unit fixed cost decreases with increase in production & increases with decrease in production.

** Therefore, contribution margin = $353 & Contribution Ratio = 70.60%

Income Statement :

** Break Even point & Desired Profit :

In order to achieve break even point sandy bank should sell 403 canoes approximately. & for achieving a profit of $78000, they should sell 624 canoes