Question

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 13,000 T-shirts at $18 each in the coming year. Product costs include:

Direct materials per T-shirt	$6.30
Direct labor per T-shirt	$1.26
Variable overhead per T-shirt	$0.54
Total fixed factory overhead	$37,000

Variable selling expense is the redemption of a coupon, which averages $0.90 per T-shirt; fixed selling and administrative expenses total $17,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three 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	$

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

Super-Tees Company
Contribution-Margin-Based Operating Income Statement
For the Coming Year
	Total	Per Unit
	$	$
	$	$
	$

3. What if the per unit selling expense increased from $0.90 to $1.95? 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	$

Answer 1

1) calculate following :

a. Variable product cost per unit (6.30+1.26+0.54)	8.10
b. Total variable cost per unit (8.10+0.90)	9.00
c. Contribution margin per unit (18-9)	9.00
d. Contribution margin ratio (9*100/18)	50%
e. Total fixed expense for the year (37000+17000)	54000

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year.

	Total	Per unit
Sales	234000	18
Variable cost	117000	9
Contribution margin	117000	9
Fixed cost	54000
Net operating income	63000

1) calculate following :

a. Variable product cost per unit (6.30+1.26+0.54)	8.10
b. Total variable cost per unit (8.10+1.95)	10.05
c. Contribution margin per unit (18-10.05)	7.95
d. Contribution margin ratio (7.95*100/18)	44.1667%
e. Total fixed expense for the year (37000+17000)	54000