1. a.
Compute the variable product cost per unit.
1. a.
Explanation of Solution
Variable Cost: Variable costs refer to the costs that are involved in the production, and vary as per the changes in the volume of production.
Compute the variable product cost per unit of T-shirt:
The variable product cost per unit of T-shirt is $7.60.
1. b.
Compute the total variable cost per unit.
1. b.
Explanation of Solution
Compute the total variable cost per unit of T-shirt:
The total variable cost per unit of T-shirt is $8.40.
1. c.
Compute the contribution margin cost per unit.
1. c.
Explanation of Solution
Contribution Margin: The contribution margin refers to the process or the theory that is used to judge the benefit generated from each unit of the goods produced.
Compute the contribution margin per unit of T-shirt:
The contribution margin per unit of T-shirt is $7.60.
1. d.
Compute the contribution margin ratio.
1. d.
Explanation of Solution
Contribution Margin Ratio: The contribution margin ratio shows the amount of difference in the actual sales value and the variable expenses in percentage. This margin indicates that percentage which is available for sale above the fixed costs and the profit. The formula for variable cost ratio is shown below:
Compute the contribution margin ratio:
The contribution margin ratio is 47.50%.
1. e.
Compute the total fixed expense for the year.
1. e.
Explanation of Solution
Fixed Cost: Fixed costs refer to the costs which are involved in the production but remain the same and do not change irrespective of the volume of production.
Compute the total fixed expense for the year:
The total fixed expense for the year is $62,000.
2.
Draw up the contribution margin based income statement for Company ST.
2.
Explanation of Solution
Operating income: Operating income refers to the income generated from the operation of
business, or the revenue generated from the services offered by the company.
Compute the operating income for Company ST:
Particulars | Total Amount ($) | Per unit Amount ($) |
Sales (1) | $192,000 | $16.00 |
Less: Variable cost (2) | $100,800 | $8.40 |
Contribution margin | $91,200 | $7.60 |
Less: Fixed cost | $62,000 | |
Operating income | $29,200 |
Table (1)
The operating income for Company ST is $29,200.
Working Note (1):
Compute the value of sales:
Working Note (2):
Compute the value of variable cost:
3. a.
Compute the variable product cost per unit.
3. a.
Explanation of Solution
Compute the variable product cost per unit of T-shirt:
The variable product cost per unit of T-shirt is $7.60.
3. b.
Compute the total variable cost per unit.
3. b.
Explanation of Solution
Compute the total variable cost per unit of T-shirt:
The total variable cost per unit of T-shirt is $9.35.
3. c.
Compute the contribution margin cost per unit.
3. c.
Explanation of Solution
Compute the contribution margin per unit of T-shirt:
The contribution margin per unit of T-shirt is $6.65.
3. d.
Compute the contribution margin ratio.
3. d.
Explanation of Solution
Compute the contribution margin ratio:
The contribution margin ratio is 41.56%.
3. e.
Compute the total fixed expense for the year.
3. e.
Explanation of Solution
Fixed Cost: Fixed costs refer to the costs which are involved in the production but remain the same and do not change irrespective of the volume of production.
Compute the total fixed expense for the year:
The total fixed expense for the year is $62,000.
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Chapter 16 Solutions
EBK CORNERSTONES OF COST MANAGEMENT
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