Question

Suppose that Larimer Company sells a product for $19. Unit costs are as follows:

Direct materials	$2.05
Direct labor	1.20
Variable factory overhead	2.15
Variable selling and administrative expense	1.06

Total fixed factory overhead is $55,520 per year, and total fixed selling and administrative expense is $38,530.

	Required:
1.	Calculate the variable cost per unit and the contribution margin per unit.
2.	Calculate the contribution margin ratio and the variable cost ratio.
3.	Calculate the break-even units.
4.	Prepare a contribution margin income statement at the break-even number of units. Enter all amounts as positive numbers. 1. Calculate the variable cost per unit and the contribution margin per unit. Round your answers to two decimal places. Unit variable cost Unit contribution margin 2. Calculate the contribution margin ratio and the variable cost ratio. Contribution margin ratio % Variable cost ratio % 3. Calculate the break-even units. 4. Prepare a contribution margin income statement at the break-even number of units. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement. Enter all amounts as positive numbers. Larimer Company Contribution Margin Income Statement At Break-Even Number of Units 1 2 3 4 5

Answer 1

1) Calculation of variable cost per unit

Direct materials	$2.05
Direct labor	1.20
Variable factory overhead	2.15
Variable selling and administrative expense	1.06
Variable cost per unit	$6.46

Calculation of contribution margin per unit

Contribution margin per unit= Sales price per unit-Variable cost per unit

= $19-6.46= $12.54

2) Contribution margin ratio= Contribution margin*100/Sales

= $12.54*100/19= 66%

Variable cost ratio= Variable cost*100/Sales

= $6.46*100/19= 34%

3) Total fixed cost= Fixed factory overhead+Fixed selling and administrative expense

= $55520+38530= $94050

Break even units= Fixed cost/Contribution margin per unit

= $94050/12.54

= 7500 units

4)

Larimer Company
Contribution Margin Income Statement
At Break-Even Number of Units
1	Sales (7500*$19)	$142500
2	Less: Variable cost (7500*$6.46)	48450
3	Contribution margin	94050
4	Less: Fixed cost (55520+38530)	94050
5	Operating income (loss)	$0