Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Compan
ID: 2415628 • Letter: V
Question
Variable Costs, Contribution Margin, Contribution Margin Ratio
Super-Tees Company plans to sell 18,000 T-shirts at $21 each in the coming year. Product costs include: Direct materials per T-shirt $7.35 Direct labor per T-shirt $1.47 Variable overhead per T-shirt $0.63 Total fixed factory overhead $45,000 Variable selling expense is the redemption of a coupon, which averages $1.05 per T-shirt; fixed selling and administrative expenses total $17,000.
3. What if the per unit selling expense increased from $1.05 to $2.25? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):
a. Variable product cost per unit
$
b. Total variable cost per unit
$
c. Contribution margin per unit
$
d. Contribution margin ratio
e. Total fixed expense for the year
$
a. Variable product cost per unit
$
b. Total variable cost per unit
$
c. Contribution margin per unit
$
d. Contribution margin ratio
e. Total fixed expense for the year
$
Explanation / Answer
a) Variable product cost per unit:
Direct materials - $7.35
Direct labour - $1.47
Variable overhed - $0.63
Total = $7.35+$1.47+$0.63=$9.45
b) Total variable cost per unit:
Variable product cost per unit = $9.45
Variable selling price per unit = $2.25
Total = $9.45+$2.25=$11.7
c) Contribution margin per unit:
Contribution margin per unit = Sales per unit - variable product cost per unit
= $21 - $9.45 =$11.55
d) Contribution margin ratio:
Contribution margin ratio = Contribution margin per unit/Sales per unit
= $11.55/$21=55%
e) Total fixed expenses for the year:
Fixed factory overhead + Fixed selling and administrative expenses = $45000+ $17000 = $62000
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