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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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Variable Cost Ratio, Contribution Margin Ratio

Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $30,000 and fixed selling and administrative expense is $48,000.

Required:

  1. 1. Calculate the variable cost ratio.
  2. 2. Calculate the contribution margin ratio.
  3. 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 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.

Use the following formula to calculate the variable cost ratio:

Variable cost ratio=Variable cost per unitSales per unit</

2.

To determine

Compute the contribution margin ratio.

3.

To determine

Make a contribution margin income statement.

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