Question

CVP with Activity-Based Costing and Multiple Products

Busy-Bee Baking Company produces a variety of breads. The plant manager would like to expand production into sweet rolls as well. The average price of a loaf of bread is $1. Anticipated price for a package of sweet rolls is $1.50. Costs for the new level of production are as follows:


Cost Driver Unit VariableCost Level of Cost Driver
Loaf of bread $0.65 —
Package of sweet rolls $0.93 —
Setups $300 250
Maintenance hours $15 3,500

Other data:
Total fixed costs (traditional) $185,000
Total fixed costs (ABC) 57,500

Busy-Bee believes it can sell 600,000 loaves of bread and 200,000 packages of sweet rolls in the coming year.

Prepare a contribution-margin-based income statement for next year. Be sure to show sales and variable costs by product and in total.

Busy-Bee Baking Company
Contribution-Margin-Based Income Statement
Bread Sweet Rolls Total
Sales $ $ $
Less: Variable cost
Contribution margin $ $ $
Less: Fixed costs
Operating income $
Feedback

Remember a Contribution margin income statement calculates contribution-margin not gross profit.

Answer 1

To prepare the contribution-margin-based income statement for Busy-Bee Baking Company, calculate the sales and variable costs for each product separately and then calculate the total sales and total variable costs. Subtract the total variable costs from the total sales to calculate the contribution margin, and then subtract the fixed costs to calculate the operating income.

Step-by-step explanation:

To prepare the contribution-margin-based income statement for Busy-Bee Baking Company, we need to calculate the sales and variable costs for each product separately and then calculate the total sales and total variable costs.

For bread: Average price per loaf of bread is $1. Variable cost per loaf of bread is $0.65. Total sales for bread would be $1 x 600,000 = $600,000. Total variable cost for bread would be $0.65 x 600,000 = $390,000

For sweet rolls: Anticipated price per package of sweet rolls is $1.50. Variable cost per package of sweet rolls is $0.93. Total sales for sweet rolls would be $1.50 x 200,000 = $300,000. Total variable cost for sweet rolls would be $0.93 x 200,000 = $186,000

Total sales for both products would be $600,000 + $300,000 = $900,000. Total variable cost for both products would be $390,000 + $186,000 = $576,000.

Subtracting the total variable costs from the total sales, we can calculate the contribution margin, which is $900,000 - $576,000 = $324,000. Subtracting the fixed costs (both traditional and ABC) from the contribution margin, we can calculate the operating income, which is $324,000 - $185,000 - $57,500 = $81,500.