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 $

Homework Answers

Answer #1

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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