Question

Riverside Inc. makes one model of wooden canoe. Partial information for it follows:

Number of Canoes Produced and Sold 475 625 775
Total costs
Variable costs $ 64,600
Fixed costs 148,400
Total costs $221,330
Cost per unit
Variable cost per unit
Fixed cost per unit
Total cost per unit

Required:
1. Complete the missing values in the table above.
2. Suppose Riverside sells its canoes for $505 each. Calculate the contribution margin per canoe and the contribution margin ratio.
3. Next year Riverside expects to sell 660 canoes. Complete a contribution margin income statement for the company.

Answer 1

1. Please refer to table (1) below

2. Contribution margin = $369

contribution margin ratio = 73.07%

3.Net income = $95, 140

please refer to income statement in point 3

Step-by-step explanation:

1.

475 625 775

Total Costs: ($) ($) ($)

Variable Cost 64, 600 85, 000 105, 400

Fixed Cost 148, 400 148, 400 148, 400

Total cost 213, 000

Cost Per Unit

Variable Cost per unit 136 136 136

Fixed Cost per unit 312.42 237.44 191.48

Total cost per unit 448.42 373.44 327.48

2.

Amount ($) Per Unit

Sales 505

Less: variable cost 136

Contribution Margin 369

Contribution margin ratio (369 / 505) 73.07%

What is Contribution margin?

1. Contribution margin is the selling price minus all the variable costs associated with the product. The total contribution margin represents the amount of earnings that are available to pay for fixed costs after paying for variable costs.

What is Contribution margin ratio?

Contribution margin ratio is the difference between sales and variable costs expressed as a percentage. This is the contribution margin expressed as a percentage of sales.

3.

Amount ($)

Sales 333, 300 $505 x 660

Less: Variable costs 89, 760 $136 x 660

Contribution 243, 540

Less: Fixed Costs 148, 400

Net Income 95, 140

What is a contribution margin income statement?

A contribution margin income statement is an income statement in which all the variable expenses are deducted from sales to arrive at ac contribution margin. All fixed costs are deducted from the contribution margin to arrive at the net income profit or loss for the period.

This statement is useful for decision making because it helps in understanding the cost behavior by separating

Answer 2

Number of canoes produced and sold:

Canoes 1 = 475 produced and sold

Canoes 2 = 625 produced and sold

Canoes 3 = 775 produced and sold

As we know that Variable cost per unit = variable cost / units produced.

Canoes 1 = 64600 / 475 = 136 per unit

Canoes 2 =64600 / 625= 103 per unit

Canoes 3 =64600 / 775= 83.35 per unit.

As we know that fixed cost per unit = Fixed cost / units produced

Canoes 1 = 148400 / 475 = 312.42 per unit

Canoes 2 = 148400 / 625 = 237.44 per unit

Canoes 3 = 148400 / 775 = 191.48 per unit.

As we know that Total cost per unit = variable cost per unit + fixed cost per unit

Canoes 1 = 136 +312.42 = 448.42 per unit

Canoes 2 = 103 +237.44 = 340.44 per unit

Canoes 3 = 83.35 + 191.48 = 274.83 per unit.

Sales price per unit = Sales / unit sold.

Canoes 1= 221330/475= 465.95 per unit

Canoes 2 =221330/625= 354.12 per unit

Canoes 3 =221330/775 = 285.58 per unit

As we know that contribution margin per unit = Sales price per unit - variable price per unit.

Canoes 1 = 465.95- 136= 329.95 per unit

Canoes 2 = 354.12 - 103 = 251.12 per unit

Canoes 3 = 285.58 - 83.35 = 202.23 per unit

As we know that contribution margin ratio = (sales per unit - variable per unit) / sales per unit.

Canoes 1 = (465.95- 136)/465.95= 0.70

Canoes 2 = (354.12 - 103)/354.12 = 0.70

Canoes 3 = (285.58 - 83.35)/285.58 = 0.61.

3. Contribution margin income statement.

Sales ( 660 * 335) = 221100

less: variable cost per unit (660 * 224.84) = (148394)

Contribution margin 72706