Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 16,000 T-shirts at $23 each in the coming year. Product costs include:

Direct materials per T-shirt	$8.05
Direct labor per T-shirt	$1.61
Variable overhead per T-shirt	$0.69
Total fixed factory overhead	$41,000

Variable selling expense is the redemption of a coupon, which averages $1.15 per T-shirt; fixed selling and administrative expenses total $12,000.

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	$

Feedback

a. & b. Remember there is a difference between variable product cost per unit and total variable cost per unit. c. See Cornerstone 16.1. Price is a part of the calculation. d. Contribution Margin ratio is Contribution Margin divided by selling price. e. See Cornerstone 16.1. Include fixed costs for the entire company.

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
Sales	$	$
Total variable expense
Total contribution margin	$	$
Total fixed expense
Operating income	$

Feedback

Remember a contribution margin income statement calculates contribution-margin not gross profit.

3. What if the per unit selling expense increased from $1.15 to $2.45? 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	$