Question

Young Company has provided the following information:

Price per unit	$40
Variable cost per unit	12
Fixed costs per month	$10,000

What is the contribution margin ratio?

A) 12%

B) 60%

C) 40%

D) 70%

First Buy Company provided the following manufacturing costs for the month of June.

Direct labor cost	$136,000
Direct materials cost	80,000
Equipment depreciation (straight-line)	24,000
Factory insurance	19,000
Factory manager's salary	12,800
Janitor's salary	5,000
Packaging costs	18,800
Property taxes	16,000

From the above information, calculate First Buy's total variable costs.

A) $311,600

B) $62,300

C) $234,800

D) $38,400

Answer 1

• All working form part of the answer
• Question 1:

Unit Contribution = Unit Sale price – Unit Variable Cost
= $ 40 - $ 12 = $ 28

Contribution margin Ratio (CM Ratio) = Unit Contribution / Unit Sales Price

= $ 28 / $ 40 = 0.7

Hence, CM Ratio = 70% [0.7 x 100) = Option D: 70%

• Question 2

Total Variable costs:

Direct labor cost = 136000
Direct Material cost = 80000
Packaging Costs = 18800

Total variable cost = 136000 + 80000 + 18800 = $ 234,800 = Option C: $ 234,800

---Rest are Fixed Costs----