Contribution margin income statement

Assume that you are part of the accounting team for Lennon Products. The company has only one product that sells for $40 per unit. Lennon estimates total fixed costs to be $3,700. Lennon estimates direct materials cost of $12.00 per unit, direct labor costs of $15.00 per unit, and variable overhead costs of $3.00 per unit. The CEO would like to see what the gross margin and operating income will be if 600 units are sold in the next period. Contribution margin income statement.

Lennon ProductsContribution Margin Income Statement

Sales $______________

A.Fixed costs or B. Variable costs _____________

A. Contribution margin or B.Gross margin _______________

A.Contribution margin or B. Gross margin _________________

CVP Analysis and the Break-Even Point in Sales Dollars

CVP analysis focuses on selling price, units sold, variable cost per unit, and total fixed costs. Managers can use the contribution margin format to understand the effects of changes in any of these areas.

Contribution margin is the amount that is available to pay___________costs.

Choose Below.

a. direct

b.fixed

c.manufacturing

After those costs are paid, anything remaining from contribution margin becoomes_____________.

Choose Below.

a.gross margin

b.operating income

c.revenue

A business can determine the level of sales needed to cover all costs by knowing the break-even point. The break-even point is where________.

Choose Below.

a.perating income is zero

b.the contribution margin is equal to variable costs

c.variable costs exceed fixed costs

. This point can be expressed as thebreak-even point in unitsor thebreak-even point in sales dollars. The following formulas are used to calculate the break-even point in sales dollars:

1. Calculate thecontribution margin per unit: Selling Price - Variable Cost per Unit

2. Determine thecontribution margin ratio:Contribution Margin per UnitSelling Price

3. Compute the break-even point in sales dollars:Total Fixed CostsContribution Margin Ratio

APPLY THE CONCEPTS:

Calculate the break-even point in sales dollars for Lennon Products

Further analysis of Lennon Products's fixed costs revealed that the company actually faces annual fixed overhead costs of $4,200 and annual fixed selling and administrative costs of $1,800. Variable cost estimates are correct: direct materials cost, $12.00 per unit; direct labor costs, $15.00 per unit; and variable overhead costs, $3.00 per unit. At this time, the selling price of $40 will not change. Complete the following formulas for the revised fixed costs. Enter the ratio as a percentage.

Contribution Margin per Unit=$___________- $_____________________ = $_____________________.

Contribution Margin Ratio=$_________________= _____________%

_______________________

$________________

Now complete the formulas for (1) the break-even point in sales dollars and (2) the units sold at the break-even point. To calculate this, divide the break-even point in sales dollars by the unit selling price.

Break-Even Point in Sales Dollars=$_________________= _____________%

_______________________

$________________

Units Sold at Break-Even Point =___________________ units

Assume that the number of units that Lennon sold exceeded the break-even point by one

(1).How much would operating income be?

$______________

What would operating income be if the units sold exceeded the break-even point by five (5) units?

$______________