(t) Homepage-Cent G Login with Centen x × O chapter 6 C ? ezto.mheducatior.com/h

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(t) Homepage-Cent G Login with Centen x × O chapter 6 C ? ezto.mheducatior.com/hm.tpx?--?7003096165846298-1528169030144 Connect Registrat om note aculae x Blackboard Learn Course Information Learning My Cours Edit My Resume D Centennial Colleg o Question 4 fof 5) 4. 10.00 points Bikes Manufacturing produces and sells children's bikes at an average price of $120 Its costs are as follows direct materials S12 direct labours6. variable overhead. S4 sales commission 5% of price 1 fixed monthly costs are $54,000 Required: 1. Using the above cost data, set up a monthly cost equation 2. What is the company's contribution margin percentage? (Round your answer to 2 decimal places.) Reterences Book & Resources Worksheet

Explanation / Answer

Solution:

Part 1 --- Monthly Cost Equation

Cost equation means the formula for calculating the cost for the output produced.

Cost equation includes variable cost x number of units produced + Fixed Cost

Since Fixed Costs do not change irrespective of production volume. So it is taken as constant figure/amount in cost equation.

Variable Cost per unit also remain constant but total variable cost will vary with the production volume. In other words total variable cost is higher if production volume is high and vice a versa.

Therefore Variable Cost per unit is taken as constant figure and multiplied by Number of Units Produced.

Variable Cost per unit = Direct materials per unit $12 + Direct labor per unit $6 + Variable Overhead per unit $4 + Sales Commission (5%*120 i.e. $6) = $28 per unit

Cost Equation (Y) = Fixed Cost + Variable Cost Per Unit * X

Here, Fixed Cost = $54,000

Variable Cost Per Unit = $28

X --- is the production volume

Cost Equation (Y) = $54,000 + $28 * X

Part 2 -- Contribution Margin Percentage

Unit Selling Price

$120

Less: Variable Cost Per Unit

$28

Contribution Margin Per Unit

$92

Contribution Margin Percentage = Contribution Margin per Unit $92 / Unit Selling Price $120 x 100

= 76.67%

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Unit Selling Price

$120

Less: Variable Cost Per Unit

$28

Contribution Margin Per Unit

$92

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