Question

# Cornerstone Exercise 16.1 (Algorithmic) Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell...

Cornerstone Exercise 16.1 (Algorithmic)
Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 15,000 T-shirts at \$16 each in the coming year. Product costs include:

 Direct materials per T-shirt \$5.60 Direct labor per T-shirt \$1.12 Variable overhead per T-shirt \$0.48 Total fixed factory overhead \$43,000

Variable selling expense is the redemption of a coupon, which averages \$0.80 per T-shirt; fixed selling and administrative expenses total \$19,000.

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
 Sales Total contribution margin Total fixed expense Total variable expense Correct 6 of Item 2
 \$ Correct 7 of Item 2
 \$ Correct 8 of Item 2
 Sales Total contribution margin Total fixed expense Total variable expense Correct 9 of Item 2
 Correct 10 of Item 2
 Correct 11 of Item 2
 Sales Total contribution margin Total fixed expense Total variable expense Correct 12 of Item 2
 \$ Correct 13 of Item 2
 \$ Correct 14 of Item 2
 Sales Total contribution margin Total fixed expense Total variable expense Correct 15 of Item 2
 Correct 16 of Item 2
 Operating income Operating loss Correct 17 of Item 2
 \$ Correct 18 of Item 2

Solution

3. What if the per unit selling expense increased from \$0.80 to \$1.75? 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 Unit Cost Direct materials per T-shirt \$5.60 Direct labor per T-shirt \$1.12 Variable overhead per T-shirt \$0.48 Total variable product cost \$7.20

b.

 Total Variable costs Unit Cost Direct materials per T-shirt \$5.60 Direct labor per T-shirt \$1.12 Variable overhead per T-shirt \$0.48 Redemption of coupon \$0.80 Total variable costs \$8.00

C, D.

 Contribution margin \$8.00 Sales - variable costs Contribution margin ratio 50% Contribution margin / Sales

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