Question

Great-Garments Company plans to sell 9,000 T-shirts at $15 each in the coming year. Product costs include:

Direct materials per T-shirt	$5.00
Direct labour per T—shirt	$1.00
Variable overhead per T-shirt	$0.65
Total fixed factory overhead	$44,000

Variable selling expense is the redemption of a coupon, which averages $0.85 per T-shirt; fixed selling and administrative expenses total $19,000.

Required:

( for the following questions, please write the formula as well)

a. Total variable cost per unit

b. Contribution margin per unit   

c. Contribution margin ratio

d. Break-even point in units (Q)      

e. Break- Even point in sales ($ amount)

f. Required sales in units (Q) to make a profit of $12,000

g. Required sales value ($) to make a profit of $12,000

h. Prepare a contribution—margin-based income: statement for Great Garment Company for the coming year.

Answer 1

	selling price per unit				15
	Direct materials per T-shirt			5
	Direct labour T-shirt			1
	Variable overhead per T-shirt			0.65
	variable selling price per unit			0.85
	total variable expense per unit				7.5
	Contribution per unit				7.5
a)	total variable cost per unit
	7.5
b)	Contribution margin per unit
	7.5
c)	Contribution margin ratio
	cm/selling price per unit
	7.5/15
	50%
d)	Break even point in units
	total fixed cost/cm per unit
	(44000+19000)/7.5
	8400	units
e)	Break even point in sales
	total fixed cost/cm ratio
	63000/50%
	126000
f)	sales unit for target profit
	(fixed cost+ target profit)/cm per unit
	(63000+12000)/7.5
	10000	units
g)	(total fixed cost+ target profit)/cm ratio
	(63000+12000)/50%
	150000
h)	contribution margin income statement
	sales	(9000*15)=			135000
	less variable expense
	cost of goods sold		9000*(5+1+.65)		59850
	selling exp		9000*.85		7650
	contribution margin.				67500
	fixed expense
	factory overhead			44,000
	selling and adm			19000	63,000
	net income				4,500