Question

PA2.

LO 3.1A company manufactures and sells racing bicycles to specialty retailers. The Bomber model sells for $450 and has per-unit variable costs of $200 associated with its production. The company has fixed expenses of $40,000 per month. In May, the company sold 225 of the Bomber model bikes.

Calculate the contribution margin per unit for the Bomber.
Calculate the contribution margin ratio of the Bomber.
Prepare a contribution margin income statement for the month of May.

Answer 1

Contribution margin per unit = $250

Contribution margin ratio = 55.56%

Step-by-step explanation:

The computations are shown below:

Contribution margin per unit = Sale price per unit - variable cost per unit

= $450 - $200

= $250

Contribution margin ratio would be

= (Contribution margin per unit) ÷ (Sale price per unit) × 100

= ($250) ÷ ($450) × 100

= 55.56%

And, the contribution margin income statement for may month is presented below:

Sales (225 bikes × $450) $101,250

Less: Variable cost (225 bikes × $200) ($45,000)

Contribution margin $56,250

Less: Fixed expenses per month ($40,000)

Net income $16,250