Refer to the information for Tweety Company in E5-1. Tweety Company’s owner, Sylvester, believes that he can sell 2,000 birdbaths during the month of April and has predicted a contribu¬ tion margin income of $16,320 as shown in the following contribution margin statement:

Required:

Explain to Sylvester why his prediction is incorrect. Be specific about his incorrect assumptions and give him as much detail as possible about what the accurate contribution margin statement would show.

Data from E5-1

Tweety Company manufactures one model of birdbath, which is very popular. Tweety sells all units it produces each month. The relevant range is 0-1,500 units, and monthly production costs for the production of 1,000 units follow. Tweety’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.

Transcribed Image Text:

TWEETY COMPANY Contribution Margin income Statement Expected for 2,000 Units Sales Revenue (2,000 x $20.00) Less: Variable Costs (2,000 x $9.75) Contribution Margin (2,000 x $10.25) Less: Fixed Costs Income from Operations $40,000 19,500 $20,500 4,180 $16,320