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
- Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?arrow_forwardMaple Enterprises sells a single product with a selling price of $75 and variable costs per unit of $30. The companys monthly fixed expenses are $22,500. What is the companys break-even point in units? What is the companys break-even point in dollars? Construct a contribution margin income statement for the month of September when they will sell 900 units. How many units will Maple need to sell in order to reach a target profit of $45,000? What dollar sales will Maple need in order to reach a target profit of $45,000? Construct a contribution margin income statement for Maple that reflects $150,000 in sales volume.arrow_forwardKlamath Company produces a single product. The projected income statement for the coming year is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. 2. Suppose 10,000 units are sold above break-even. What is the operating income? 3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue. (Note: Round the contribution margin ratio to four decimal places, and round the sales revenue to the nearest dollar.) Suppose that revenues are 200,000 more than expected for the coming year. What would the total operating income be?arrow_forward
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