Q2TI - Horngren'S Financial And Managerial Accounting

Question

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has $6,000 in fixed costs per month. 

6. Prepare a contribution margin income statement for one month if the company sells 200 tables. 

7. What is the total contribution margin for the month when the company sells 200 tables? 

8. What is the unit contribution margin? 

9. What is the contribution margin ratio?

Step-by-Step Solution

Answer

1. Operating Income is $6,000
2. Total contribution margin $12,000
3. Unit contribution margin $60
4. Contribution margin ratio is 60%

Preparation of contribution margin income statement

Particulars	Amount ($)
Sales revenue (200 tablesx$100)	20,000
Less: Variable cost (200 tablesx$40)	(8,000)
Contribution Margin	12,000
Less: Fixed cost	(6,000)
Operating income	6,000

Total contribution margin

The total contribution margin of 200 tables is $12,000

Calculation of unit contribution margin

Unit contribution margin =Total Contribution Margin/No. of tables sold

=$12,000/200

=$60

Calculation of contribution margin ratio

Contribution margin ratio =Contribution margin/net sales revenue

=$12,000/$20,000

=60%