   Chapter 7, Problem 15BEA ### Managerial Accounting: The Corners...

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

#### Solutions

Chapter
Section ### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
6 views

# Variable Cost Ratio, Contribution Margin RatioHead-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is$45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $20,000, and fixed selling and administrative expense is$29,500.Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

1.

To determine

Compute the variable cost ratio.

Explanation

Variable Cost:

Variable cost is the cost which changes with the change in the level of output. In other words, variable cost increases with the increase in units produced and decreases with the decrease in units produced.

Use the following formula to compute the variable cost ratio:

Variable Cost Ratio=Variable cost per unitPrice

Substitute $45 for variable cost per unit and$75 for price

2.

To determine

Compute the contribution margin ratio.

3.

To determine

Make the contribution margin income statement for Company H.

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