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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200.

Refer to the information for Dartmouth above. The variable cost ratio and the contribution margin ratio for Dartmouth are

Chapter 7, Problem 10MCQ, Dartmouth Company produces a single product with a price of 12, variable cost per unit of 3, and

To determine

Identify variable cost ratio and contribution margin ratio.

Explanation

Variable Cost Ratio:

Variable cost ratio can be evaluated by dividing the total amount of variable cost by the sales. It can also be determined by dividing the variable cost per unit by the selling price per unit.

Contribution Margin Ratio:

The sales percentage remaining after covering the amount of total variable cost is known as the contribution margin ratio. It is the available sales dollar percentage which will be used to cover the total fixed cost.

c.

Use the following formula to calculate variable cost ratio:

Variablecostratio=VariablecostperunitPriceperunit

Substitute $3 for variable cost per unit and $12 for price per unit the above formula.

Variablecostratio=$3$12=0.25

Variable cost ration is 25%.

Use the following formula to calculate contribution margin ratio:

Contributionmarginratio=ContributionmarginperunitPriceperunit

Substitute $91 for contribution margin per unit and $12 for price per unit the above formula

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