PA6 3 Calculating Contribution Margin Contribution Margin Ratio Break Even Point Target Profit

Question: #944

PA6-3 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point, Target Profit [LO 6-1, 6-2]

Hawk Homes, Inc., makes one type of birdhouse that it sells for $30 each. Its variable cost is $15 per house, and its fixed costs total $13,840 per year. Hawk currently has the capacity to produce up to 2,000 birdhouses per year, so its relevant range is 0 to 2,000 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,100 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. (Round your "Unit" and "Sales Revenue" answers to the nearest whole number.)

5. Suppose Hawk wants to earn $20,000 this year. Determine how many birdhouses it must sell to generate this amount of profit.

Solution: #950

PA6-3 Calculating Contribution Margin Contribution Margin Ratio Break-Even Point Target Profit

Contribution Margin Income Statement
Output    2000

Sales (1100 x $30)        $33,000
Less: Variable Cost
Variable Cost (2000*$15)    $30,000
Add: Opening stock    $0
Less: Closing Stock
(2000-1100)= 900 * $15    $13,500    $16,500
Contribution        $16,500        ...