College

A company manufactures and sells racing bicycles to specialty retailers. The Bomber model sells for $450 and has per-unit variable costs of $200 associated with its production. The company has fixed expenses of $40,000 per month. In May, the company sold 225 of the Bomber model bikes.

Tasks:

1. Calculate the contribution margin per unit for the Bomber.
2. Calculate the contribution margin ratio of the Bomber.
3. Prepare a contribution margin income statement for the month of May.

Answer :

Answer:

Contribution margin per unit = $250

Contribution margin ratio = 55.56%

Explanation:

The computations are shown below:

Contribution margin per unit = Sale price per unit - variable cost per unit

= $450 - $200

= $250

Contribution margin ratio would be

= (Contribution margin per unit) ÷ (Sale price per unit) × 100

= ($250) ÷ ($450) × 100

= 55.56%

And, the contribution margin income statement for may month is presented below:

Sales (225 bikes × $450) $101,250

Less: Variable cost (225 bikes × $200) ($45,000)

Contribution margin $56,250

Less: Fixed expenses per month ($40,000)

Net income $16,250

Final answer:

The contribution margin per unit for the Bomber model is $250, with a contribution margin ratio of 55.56%. The contribution margin income statement for May shows a net income of $16,250.

Explanation:

The contribution margin per unit for the Bomber model is calculated by subtracting the per-unit variable costs from the selling price. Therefore, the contribution margin per unit is $450 - $200 = $250. The contribution margin ratio is found by dividing the contribution margin per unit by the selling price, which is $250 / $450 = 0.5556 or 55.56%.

For May, the contribution margin income statement is as follows:

  • Sales (225 units x $450) = $101,250
  • Variable Costs (225 units x $200) = $45,000
  • Contribution Margin = $56,250
  • Fixed Expenses = $40,000
  • Net Income = $16,250

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