Question

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

Number of Canoes Produced and Sold		600			800			950
Total costs
Variable costs	$	129,000		$	172,000		$	204,250
Fixed costs		228,000			228,000			228,000
Total costs	$	357,000		$	400,000		$	432,250
Cost per unit
Variable cost per unit	$	215.00		$	215.00		$	215.00
Fixed cost per unit		380.00			285.00			240.00
Total cost per unit	$	595.00		$	500.00		$	455.00

Riverside sells its canoes for $670 each. Next year Riverside expects to sell 1,000 canoes.

Required:

Complete the Riverside’s contribution margin income statement for each independent scenario. Assuming each scenario is a variation of Riverside’s original data. (Round your unit contribution margin and contribution margin ratio to 2 decimal places (i.e. .1234 should be entered as 12.34%) and all other answers to the nearest dollar amount.)

Scenario 1 Raises Sales Price to $770 per Canoe Scenario 2 Increase Sales Price and Variable Cost per Unit by 10 Percent Scenario 3 Decrease Fixed Cost by 20 Percent Unit Contribution Margin Contribution Margin Ratio Contribution Margin Income Statement Contribution Margin Net Operating Income

Answer 1

Scenario 3 455.00 67.91 % Scenario 1 Scenario 2 Unit Contribution Margin 555.00 500.50 (Sales price - Varible cost per unit) Contribution Margin Ratio 72.08 % 67.91 % (Unit contribution margin / Sales price) Contribution Margin Income Statement Sales revenue $770,000 $737.000 Less: variable Cost $215,000 $236,500 $670,000 $215.000 Contribution Margin Less: Fixed Cost $555,000 $228.000 $500,500 $228.000 $455,000 $182.400 Net Operating Income $327,000 $272,500 $272.600 Workings: Scenario 1 Scenario 2 Raises Sales Price to $770 per Canoe Increase Sales Price and Variable Cost per Unit by 10 Percent Sales price per unit Add: Increase sales price 10% Sale price per unit $670.00 $67.00 $737.00 Variable cost per unit Add: Increase variable cost 10% $215.00 $21.50 $236.50 Scenario 3 Decrease Fixed Cost by 20 Percent Fixed cost Less: Decrease fixed cost 20% $228.000 $45,600 $182.400