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Chapter 20: Q2TI (page 1097)

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has $6,000 in fixed costs per month.

6. Prepare a contribution margin income statement for one month if the company sells 200 tables.

7. What is the total contribution margin for the month when the company sells 200 tables?

8. What is the unit contribution margin?

9. What is the contribution margin ratio?

Short Answer

Expert verified
  1. Operating Income is $6,000
  2. Total contribution margin $12,000
  3. Unit contribution margin $60
  4. Contribution margin ratio is 60%

Step by step solution

01

Preparation of contribution margin income statement

Particulars

Amount ($)

Sales revenue (200 tablesx$100)

20,000

Less: Variable cost (200 tablesx$40)

(8,000)

Contribution Margin

12,000

Less: Fixed cost

(6,000)

Operating income

6,000

02

Total contribution margin

The total contribution margin of 200 tables is $12,000

03

Calculation of unit contribution margin

Unit contribution margin =Total Contribution Margin/No. of tables sold

=$12,000/200

=$60

04

Calculation of contribution margin ratio

Contribution margin ratio =Contribution margin/net sales revenue

=$12,000/$20,000

=60%

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Most popular questions from this chapter

A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to the number of stores, is the manager鈥檚 salary fixed or variable? Why?

What is contribution margin?

Question: Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month.

S20-10 Computing contribution margin per unit, breakeven point in sales units

Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.

Question: Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?

Using the high-low method

Mark owns a machine shop. In reviewing the shop鈥檚 utility bills for the past 12 months, he found that the highest bill of \(2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of \)2,300 occurred in December when the machines worked 600 machine hours.

Requirements

1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.

2. Show the equation for determining the total utility cost for the machine shop.

3. If Mark anticipates using 800 machine hours in January, predict the shop鈥檚 total utility bill using the equation from Requirement 2.
See all solutions

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