Question

E5-16 Calculating Contribution Margin and Contribution Ratio, Preparing Contribution Margin Income Statement [LO 5-5] Riverside Inc. makes one model of wooden canoe. Partial information for it follows: 450 650 Number of Canoes Produced and Sold Total costs Variable costs Fixed costs Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit $ 72,000 187,200 $259,200 $ 104,000 187,200 $ 291,200 800 $ 128,000 187,200 $315,200 $ $ 160.00 416.00 $ 576.00 160.00 288.00 448.00 $ 160,00 234.00 $ 394.00 $ Riverside sells its canoes for $680 each. Next year Riverside expects to sell 1,000 canoes.

Answer 1

	Scenario 1		Scenario 2		Scenario 3
	Revised sales Price to $780 per Canoe		Increase Sales price and variable cost per unit by 10 %		Decrease Fixed cost by 20%
Unit Contribution Margin	620		604		520
	(780-160)		(780-176)		(680-160)
Contribution Margin Ratio	0.79	%	0.77	%	0.76	%
	(620/780)		(604/780)		(520/680)
Contribution Margin Income Statement
Units	450		650		800
Sales revenue	3,06,000		4,42,000		5,44,000
Less: Variable costs	72,000		1,04,000		1,28,000
Contribution Margin	2,34,000		3,38,000		4,16,000
Less: Fixed costs	1,87,200		1,87,200		1,87,200
Net Operating Income	46,800		1,50,800		2,28,800