Textbook Question

Chapter 7, Problem 26BEB

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. 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.

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7th Edition

ISBN: 9781337115773

Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher: Cengage Learning

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## Chapter 7 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making

Ch. 7 - Prob. 1DQCh. 7 - Describe the difference between the units sold...Ch. 7 - Define the term break-even point.Ch. 7 - Prob. 4DQCh. 7 - What is the variable cost ratio? The contribution...Ch. 7 - Prob. 6DQCh. 7 - Define the term sales mix. Give an example to...Ch. 7 - Explain how CVP analysis developed for single...Ch. 7 - Prob. 9DQCh. 7 - How does targeted profit enter into the break-even...

Ch. 7 - Explain how a change in sales mix can change a...Ch. 7 - Define the term margin of safety. Explain how it...Ch. 7 - Explain what is meant by the term operating...Ch. 7 - How can sensitivity analysis be used in...Ch. 7 - Why is a declining margin of safety over a period...Ch. 7 - If the variable cost per unit goes down,Ch. 7 - The amount of revenue required to earn a targeted...Ch. 7 - Prob. 3MCQCh. 7 - Prob. 4MCQCh. 7 - An important assumption of cost-volume-profit...Ch. 7 - The use of fixed costs to extract higher...Ch. 7 - Prob. 7MCQCh. 7 - The contribution margin is the a. amount by which...Ch. 7 - Dartmouth Company produces a single product with a...Ch. 7 - Dartmouth Company produces a single product with a...Ch. 7 - If a companys total fixed cost decreases by...Ch. 7 - Prob. 12MCQCh. 7 - Variable Cost, Fixed Cost, Contribution Margin...Ch. 7 - Prob. 14BEACh. 7 - Variable Cost Ratio, Contribution Margin Ratio...Ch. 7 - Prob. 16BEACh. 7 - Units to Earn Target Income Head-First Company...Ch. 7 - Sales Needed to Earn Target Income Head-First...Ch. 7 - Break-Even Point in Units for a Multiple-Product...Ch. 7 - Prob. 20BEACh. 7 - Margin of Safety Head-First Company plans to sell...Ch. 7 - Degree of Operating Leverage Head-First Company...Ch. 7 - Impact of Increased Sales on Operating Income...Ch. 7 - Variable Cost, Fixed Cost, Contribution Margin...Ch. 7 - Prob. 25BEBCh. 7 - Variable Cost Ratio, Contribution Margin Ratio...Ch. 7 - Prob. 27BEBCh. 7 - Units to Earn Target Income Chillmax Company plans...Ch. 7 - Sales Needed to Earn Target Income Chillmax...Ch. 7 - Prob. 30BEBCh. 7 - Prob. 31BEBCh. 7 - Margin of Safety Chillmax Company plans to sell...Ch. 7 - Prob. 33BEBCh. 7 - Impact of Increased Sales on Operating Income...Ch. 7 - Basic Break-Even Calculations Suppose that Larimer...Ch. 7 - Price, Variable Cost per Unit, Contribution...Ch. 7 - Contribution Margin Ratio, Variable Cost Ratio,...Ch. 7 - Prob. 38ECh. 7 - Prob. 39ECh. 7 - Margin of Safety Comer Company produces and sells...Ch. 7 - Prob. 41ECh. 7 - Sales Revenue Approach, Variable Cost Ratio,...Ch. 7 - Prob. 43ECh. 7 - Cherry Blossom Products Inc. produces and sells...Ch. 7 - Prob. 45ECh. 7 - Lotts Company produces and sells one product. The...Ch. 7 - Klamath Company produces a single product. The...Ch. 7 - Margin of Safety and Operating Leverage Medina...Ch. 7 - Parker Pottery produces a line of vases and a line...Ch. 7 - Jellico Inc.s projected operating income (based on...Ch. 7 - Break-Even Units, Contribution Margin Ratio,...Ch. 7 - Prob. 52PCh. 7 - Aldovar Company produces a variety of chemicals....Ch. 7 - Basu Company produces two types of sleds for...Ch. 7 - Cost-Volume-Profit Equation, Basic Concepts,...Ch. 7 - Contribution Margin Ratio, Break-Even Sales,...Ch. 7 - Prob. 57PCh. 7 - Polaris Inc. manufactures two types of metal...Ch. 7 - Cost-Volume-Profit, Margin of Safety Victoria...Ch. 7 - Abraham Company had revenues of 830,000 last year...Ch. 7 - Prob. 61PCh. 7 - Prob. 62PCh. 7 - Prob. 63PCh. 7 - Suppose that Kicker had the following sales and...Ch. 7 - Danna Lumus, the marketing manager for a division...Ch. 7 - Cost-Volume-Profit Analysis, Single-Product...Ch. 7 - Cost-Volume-Profit Analysis, Single-Product...Ch. 7 - Prob. 3MTCCh. 7 - Prob. 4MTCCh. 7 - Sensitivity Cost-Volume-Profit Analysis and...Ch. 7 - Calculate the hotels margin of safety (both in...

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Variable Cost, Fixed Cost, Contribution Margin Income Statement Chillmax Company plans to sell 3,500 pairs of casual shoes at 60 each in the coming year. Product costs include: Variable selling expense is a commission of 3 per pair; fixed selling and administrative expense totals 48,000. Required: 1. Calculate the total variable cost per unit. 2. Calculate the total fixed expense for the year. 3. Prepare a contribution margin income statement for Chillmax Company for the coming year.

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Margin of Safety 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). Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Break-even units equal 2,000. Required: 1. Calculate the margin of safety in terms of the number of units. 2. Calculate the margin of safety in terms of sales revenue.

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Variable Cost, Fixed Cost, Contribution Margin Income Statement Head-First Company plans to sell 5,000 bicycle helmets at 75 each in the coming year. Product costs include: Variable selling expense is a commission of 3 per helmet; fixed selling and administrative expense totals 29,500. Required: 1. Calculate the total variable cost per unit. 2. Calculate the total fixed expense for the year. 3. Prepare a contribution margin income statement for Head-First Company for the coming year.

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Margin of Safety Head-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). Total fixed cost equals 49,500 (includes fixed factory overhead and fixed selling and administrative expense). Break-even units equal 1,650. Required: 1. Calculate the margin of safety in terms of the number of units. 2. Calculate the margin of safety in terms of sales revenue.

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Units to Earn Target Income Head-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). Total fixed cost equals 49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sell to earn operating income of 81,900. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculated.

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Basic Break-Even Calculations Suppose that Larimer Company sells a product for 24. Unit costs are as follows: Total fixed factory overhead is 26,500 per year, and total fixed selling and administrative expense is 15,260. Required: 1. Calculate the variable cost per unit and the contribution margin per unit. 2. Calculate the contribution margin ratio and the variable cost ratio. 3. Calculate the break-even units. 4. Prepare a contribution margin income statement at the break-even number of units.

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