Question

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 13,000 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	$45,000

Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $13,000.

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 $1.20 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

Answer 1	a. Variable product cost per unit	$10.80
	b. Total variable cost per unit	$12.00
	c. Contribution margin per unit	$                  12
	d. Contribution margin ratio	0.50
	e. Total fixed expense for the year	$         58,000
Answer 2	Super-Tees Company
	Contribution-Margin-Based Operating Income Statement
	For the Coming Year
		Total	Per Unit
	Sale	$     312,000	$       24
	Less: Variable cost	$     156,000	$       12
	Contribution	$     156,000	$       12
	Less: Fixed Cost	$      58,000
	Net operating income	$      98,000
Answer 3	a. Variable product cost per unit	$10.80
	b. Total variable cost per unit	$13.35
	c. Contribution margin per unit	$            10.65
	d. Contribution margin ratio	0.4438
	e. Total fixed expense for the year	$         58,000

Detailed workings

For answer 1 and 2	Calculatio of variable product cost and total variable cost'
	Direct materials per T-shirt	$8.40
	Direct labor per T-shirt	$1.68
	Variable overhead per T-shirt	$0.72
	Variable Product cost	$10.80
	Variable selling expense	$1.20
	Total variable cost per unit	$12.00
	Calculation of Contribution margin
	Selling Price per pizza	$24
	Less: Variable cost per pizza	$12
	Contribution margin	$12
	Contribution Margin ratio	=Contribution/Selling Price
		=12/24
		0.50
For Answer 3	Calculatio of variable product cost and total variable cost'
	Direct materials per T-shirt	$8.40
	Direct labor per T-shirt	$1.68
	Variable overhead per T-shirt	$0.72
	Variable Product cost	$10.80
	Variable selling expense	$2.55
	Total variable cost per unit	$13.35
	Calculation of Contribution margin
	Selling Price per pizza	$24.00
	Less: Variable cost per pizza	$13.35
	Contribution margin	$10.65
	Contribution Margin ratio	=Contribution/Selling Price
		=10.65/24
		0.4438