Question

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	$

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