Question

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 13,000 T-shirts at $16 each in the coming year. Product costs include:

Direct materials per T-shirt	$5.60
Direct labor per T-shirt	$1.12
Variable overhead per T-shirt	$0.48
Total fixed factory overhead	$45,000

Variable selling expense is the redemption of a coupon, which averages $0.80 per T-shirt; fixed selling and administrative expenses total $14,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

a. Variable product cost per unit	$
b. Total variable cost per unit	$
c. Contribution margin per unit	$
d. Contribution margin ratio
e. Total fixed expense for the year	$

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

Super-Tees Company
Contribution-Margin-Based Operating Income Statement
For the Coming Year
	Total	Per Unit
	$	$
	$	$
	$

3. What if the per unit selling expense increased from $0.80 to $1.75? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

a. Variable product cost per unit	$
b. Total variable cost per unit	$
c. Contribution margin per unit	$
d. Contribution margin ratio
e. Total fixed expense for the year	$

Answer 1

1	a. Variable product cost per unit;	$
	Direct materials per T-shirt	5.6
	Direct labor per T-shirt	1.12
	Variable overhead per T-shirt	0.48
	Variable product cost per unit	7.2
	b. Total variable cost per unit;	$
	Variable product cost per unit	7.2
	Variable selling expense	0.8
	Total variable cost per unit	8
	c. Contribution margin per unit;	$
	Selling price per unit	16
	Less: Total variable cost per unit	-8
	Contribution margin per unit	8
	d. Contribution margin ratio = ( $ 8/$ 16) = 50%
	e. Total fixed expense for the year	$
	Total fixed factory overhead	45,000
	fixed selling and administrative expenses	14,000
	Total fixed expense for the year	59,000
2	Super-Tees Company
	Contribution-Margin-Based Operating Income Statement
	For the Coming Year
		$	per unit $
	Sales (13,000 units )	208,000	16
	Less: Total variable costs	(104,000)	-8
	Contribution Margin	104,000	8
	Less: Total fixed expense for the year	(59,000)
	Net income	45,000
3	If per unit selling expense increased from $0.80 to $1.75;
		$
	a. Variable product cost per unit	7.2
	b.Total variable cost per unit;
	Variable product cost per unit	7.2
	Variable selling expense	1.75
	Total variable cost per unit	8.95
	c. Contribution margin per unit
	Selling price per unit	16
	Less: Total variable cost per unit	-8.95
	Contribution margin per unit	7.05
	d. Contribution margin ratio = ( $ 7.05/ $ 16 ) = 0.4406
	e. Total fixed expense for the year	59,000