Riverside Inc., a company that produces a single model of a wooden canoe, has provided some partial details for the said canoe.Using this information, we can calculate the cost per unit, contribution margin per canoe, contribution margin ratio, and a contribution margin income statement.
The following is the information provided by the company:1. Direct materials = $150.00 per unit2. Direct labor = $65.00 per unit3. Manufacturing overhead = $35.00 per unitTotal = $250.00 per unitUsing this information, we can calculate the cost per unit as follows:Cost per unit = Direct materials + Direct labor + Manufacturing overhead= $150 + $65 + $35= $250Therefore, the cost per unit is $250.Suppose Riverside sells its canoes for $507 each. We can calculate the contribution margin per canoe and the contribution margin ratio using the following formulae: Contribution margin per canoe = Selling price per canoe – Cost per unit= $507 – $250= $257Therefore, the contribution margin per canoe is $257.Contribution margin ratio = Contribution margin per canoe .
Selling price per canoe X 100%= $257 / $507 X 100%= 50.69%Therefore, the contribution margin ratio is 50.69%.Next year, Riverside expects to sell 860 canoes. Based on this information, we can complete the contribution margin income statement for the company as follows:Particulars Amount ($)Sales revenue 436,620(860 x $507)Variable costs:Direct materials 129,000(860 x $150)Direct labor 55,900(860 x $65)Manufacturing overhead 30,100(860 x $35)Total variable costs 215,000Contribution margin 221,620Fixed costs:Rent 80,000Salaries 110,000Utilities 15,000Depreciation 12,000Total fixed costs 217,000Net income $4,620(Contribution margin – Fixed costs)Therefore, the net income of the company is $4,620.