Question

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 18,000 T-shirts at $21 each in the coming year. Product costs include:

Direct materials per T-shirt	$7.35
Direct labor per T-shirt	$1.47
Variable overhead per T-shirt	$0.63
Total fixed factory overhead	$43,000

Variable selling expense is the redemption of a coupon, which averages $1.05 per T-shirt; fixed selling and administrative expenses total $11,000.

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 $1.05 to $2.25? 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

Direct materials per T-shirt	7.35
Direct labor per T-shirt	1.47
Variable overhead per T-shirt	.63
Variable product cost per unit	9.45

b)

Variable product cost per unit	9.45
Variable selling expense	1.05
Total variable cost per unit	10.5

c)

contribution margin per unit = selling price- variable cost per unit

                 = 21 - 10.5

                 = 10.50

d) Contribution margin ratio =Contribution margin per unit /price

                     = 10.5/21

                     = .50

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

                 = 43000+11000

                  = 54000

2)

CONTRIBUTION MARGIN STATEMENT
	Per unit	Total
sales	21	21*18000= 378000
Less :variable expense	10.5	10.5*18000= (189000)
contribution margin	10.50	189000
Fixed cost		(54000)
Net income		135000

3)

a)

Direct materials per T-shirt	7.35
Direct labor per T-shirt	1.47
Variable overhead per T-shirt	.63
Variable product cost per unit	9.45

b)

Variable product cost per unit	9.45
Variable selling expense	2.25
Total variable cost per unit	11.70

c)

contribution margin per unit = selling price- variable cost per unit

                 = 21 - 11.70

                 =9.30

d)

Contribution margin ratio =Contribution margin per unit /price

                     = 9.3/21

                     = .4429

e)

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

                 = 43000+11000

                  = 54000