Question

Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 12,000 T-shirts at $16 each in the coming year. Product costs include: Direct materials per T-shirt $5.75 Direct labor per T-shirt $1.25 Variable overhead per T-shirt $0.60 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:

a. Variable product cost per unit

b. Total variable cost per unit

c. Contribution margin per unit

d. Contribution margin ratio (rounded to four significant digits)

e. Total fixed expense for the year

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year.

3. What if the per unit selling expense increased from $0.80 to $1.75? Calculate the new values for the following:

a. Variable product cost per unit

b. Total variable cost per unit

c. Contribution margin per unit

d. Contribution margin ratio (rounded to four significant digits)

e. Total fixed expense for the year

Answer 1

Contribution Margin12,000x 7.6 $91,200 $62,000 1 (a) Direct Material $5.75 Fixed Cost Direct Labor Variable Overhead $0.60 29,200 Net Income 1 (b) Variable Selling Expenses $0.80 3(a) Product Cost will remain same as calculated previously ($7.60) because there is a change in Variable Selling Overhead 3 (b) Variable Cost will increase by $o.95 per unit as Variable Selling Expenses increase by so.95 per unit. Variable Cost $9.35 $16.00 $8.40 1lc) Price per unit Variable Cost per unit 3(c) Contribution per unit will fall by $0.95 per unit 6.65 Contribution per unit Contribution Margin Total Fixed Cost will remain same ie. S62,000 as calculated earlier. .60 Contribution/Sales 3(d) 41.5625 % 1d Contribution Margin Ratio 47.50 % 3(e) 1(e)