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: Number of Canoes Produced and Sold 550 750 900 Total costs Variable costs $112.750 $ 153,750 $ 184,500 Fixed costs 148,500 148.500 148,500 Total costs $261.250 $ 302,250 $ 333,000 Cost per unit Variable cost per unit $ 205.00 $ 205.00 $ 205.00 Fixed cost per unit 270.00 198.00 165.00 Total cost per unit $ 475.00 $ 403.00 $ 370.00 Riverside sells its canoes for $550 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 two 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 $650 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 1 raises sales price to $650	Scenario 2 increases sales price and variable cost per unit by 10 percent	Scenario 3 decreases fixed cost by 20 percent
Unit contribution margin (sales price - variable cost per unit)	$445	$379.5	$345
Contribution margin ratio (Unit contribution margin/sales price)	68.46%	62.73%	62.73%

Contribution margin income statement

Sales	$650,000	$605,000	$550,000
Less: Variable cost	$205,000	$225,500	$205,000
Contribution margin	$445,000	$379,500	$345,000
Less: Fixed cost	$148,500	$148,500	$118,800
Net operatinng income	$296,500	$231,000	$226,200

Working notes:

Scenario 1 - Raises sales price to $650

Scenario 2 - Increase sales price and variable cost per unit by 10 percent

Sales price per unit = $550

Add: increase sales price 10% = $55

Sales price per unit = $605

Variable cost per unit = $205

Add: increase variable cost 10% = $20.5

Variable cost per unit = $225.5

Scenario 3 - Decrease fixed cost by 20%

Fixed cost = $148,500

Less: Decrease fixed cost by 20% = $29,700

Fixed cost = $118,800