Bikes Manufacturing produces and sells children’s bikes at an average price of $

Question

Bikes Manufacturing produces and sells children’s bikes at an average price of $140. Its costs are as follows: direct materials, $13; direct labour, $9; variable overhead, $2; sales commission, 5% of price. Its fixed monthly costs are $48,000.

1. Using the above cost data, set up a monthly cost equation.

Y = _____________ + ____________ X

2. What is the company’s contribution margin percentage? (Round your answer to 2 decimal places.)

contribution margin ________%

Please show the steps on how you get the solution

Bikes Manufacturing produces and sells children’s bikes at an average price of $140. Its costs are as follows: direct materials, $13; direct labour, $9; variable overhead, $2; sales commission, 5% of price. Its fixed monthly costs are $48,000.

Explanation / Answer

Calculation for Variable Cost :-

1). Monthly Cost Equation :-

Y = Fixed Cost + Variable cost per unit * X

Y = $48000 + $31 * X

2). Contribution Margin Percentage :-

= Contribution per unit / Sale price per unit

= (Sale price per unit - Variable cost per unit ) / Sale price per unit

= ($140 - $31) / $140

= $109 / $140

= 0.7786 or 77.86%

Particulars Amount ($) per unit Direct Mateials 13 Direct Labor 9 Variable Overhead 2 Sales Commission($140*5%) 7 Variable Cost per unit 31

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