Question

Super-Tees Company plans to sell 11,000 T-shirts at $24 each in the coming year. Product costs include:

Direct materials per T-shirt	$8.40
Direct labor per T-shirt	$1.68
Variable overhead per T-shirt	$0.72
Total fixed factory overhead	$41,000

Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000.

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 $1.20 to $2.55? 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 = $10.8

Variable product cost per unit = Direct materials per T-shirt + Direct labor per T-shirt+ Variable overhead per T-shirt

Variable product cost per unit = $8.40 +$1.68 +$0.72 = $10.8

b.) Total variable cost per unit = $12

Total variable cost per unit = Variable product cost per unit + Variable selling cost per t-shirt

Total variable cost per unit = $10.80 + $1.20 = $12

c.) Contribution margin per unit = $12

Contribution margin per unit = Selling price - Total variable cost per unit

Contribution margin per unit= $24 - $12 = $12

d. Contribution margin ratio = 50% or .5

Contribution margin ratio = Contribution margin per unit / selling price

Contribution margin ratio = $12 / $24 = 50%

e. Total fixed expense for the year = $56,000

Total fixed expense for the year = Total fixed factory overhead + Fixed selling and administrative expenses

Total fixed expense for the year = $41,000 + $15,000 = $56,000

2.)

Income statement for year ended 31 December
	Total	Per unit
Sales revenue	$264,000	$24
variable costs:
Direct Materials	$92,400	-$8
Direct Labor costs	$18,480	-$2
Variable manufacturing overheads	$7,920	-$1
Variable selling expenses (R20*9000)	$13,200	-$1
contribution margin	$396,000	$12
Fixed costs:
Fixed Manufacturing overhead	-$41,000	-$3.7
Fixed selling and administrative expenses	-$15,000	-$1.4
operating income	$340,000	$17.1

3.)

a. Variable product cost per unit = $10.8

Variable product cost per unit = Direct materials per T-shirt + Direct labor per T-shirt+ Variable overhead per T-shirt

Variable product cost per unit = $8.40 +$1.68 +$0.72 = $10.8

b.) Total variable cost per unit = $13.65

Total variable cost per unit = Variable product cost per unit + Variable selling cost per t-shirt

Total variable cost per unit = $10.80 + $2.55 = $13.35

c.) Contribution margin per unit = $10.65

Contribution margin per unit = Selling price - Total variable cost per unit

Contribution margin per unit= $24 - $13.356 = $10.65

d. Contribution margin ratio = 44% or .44

Contribution margin ratio = Contribution margin per unit / selling price

Contribution margin ratio = $10.65 / $24 = 44% (rounded)

e. Total fixed expense for the year = $56,000

Total fixed expense for the year = Total fixed factory overhead + Fixed selling and administrative expenses

Total fixed expense for the year = $41,000 + $15,000 = $56,000