Question

1.) Super-Tee Co. plans to sell 12,000 T-shirts at $16 each in the coming year. Product costs include:

Direct materials per shirt $5.75

Direct labor per shirt 1.25

Variable overhead per shirt .60

Fixed overhead in total $43,000

What is the company's contribution margin?

a.)		$9.00
		b.) $4.82
		c.) $10.25
		d.) $8.40

2.) Super-Tee has a contribution margin of 25%. How many T-shirts (rounded to the nearest shirt) must be sold in order for the company to break even?

a.) 3,583

b.) 10,750 T-shirts

c.) 5,375 T-shirts

d.) 172,000 T-shirts

3.) If Super-Tee has a contribution margin per T-shirt of $5.00. How many shirts must be sold in order to earn of profit of $20,000?

a.) 4,000

b.) 8,600

c.) 12,600

d.) 5,727

4.) If the contribution margin ratio for ABC Co. is 20%, the variable cost ratio was 80%, sales were $2,000,000 and fixed costs were $100,000, what was income from operations?

		a.) $300,000
		b.) $1,500,000
		c.) $400,000
		d.) $1,600,000

Answer 1

1)

Contribution margin = Selling price per shirt - Direct materials per shirt - Direct labor per shirt - Variable overhead per shirt

= $16 - $5.75 - $1.25 - $0.6

= $8.4

The answer is d.

2)

Contribution margin per unit = Selling price per shirt * 25%

= $16 * 25%

= $4

T-shirts to be sold = Fixed overhead / Contribution margin per unit

= $43,000 / $4

= 10,750

The answer is b.

3)

Shirts to be sold = (Fixed overhead + Target profit) / Contribution margin per shirt

= ($43,000 + $20,000) / $5

= 12,600

The answer is c.

4)

Income from operations = (Sales * Contribution margin ratio) - Fixed costs

= ($2,000,000 * 20%) - $100,000

= $300,000

The answer is a.