Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 12,000 T-shirts at $16 each in the coming year. Product costs include:

Direct materials per T-shirt	$5.75
Direct labor per T-shirt	$1.25
Variable overhead per T-shirt	$0.60
Total fixed factory overhead	$43,000

Variable selling expense is the redemption of a coupon, which averages $0.80 per T-shirt; fixed selling and administrative expenses total $19,000.

Required:

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1. Calculate the following values: Round dollar amounts to the nearest cent and round ratio values to three decimal places.

a. Variable product cost per unit	$fill in the blank 0b72f003ef9dfbc_1
b. Total variable cost per unit	$fill in the blank 0b72f003ef9dfbc_2
c. Contribution margin per unit	$fill in the blank 0b72f003ef9dfbc_3
d. Contribution margin ratio	fill in the blank 0b72f003ef9dfbc_4
e. Total fixed expense for the year	$fill in the blank 0b72f003ef9dfbc_5

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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.

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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.

	Total	Per Unit
SalesTotal contribution marginTotal fixed expenseTotal variable expense	$- Select -	$- Select -
SalesTotal contribution marginTotal fixed expenseTotal variable expense	- Select -	- Select -
SalesTotal contribution marginTotal fixed expenseTotal variable expense	$- Select -	$- Select -
SalesTotal contribution marginTotal fixed expenseTotal variable expense	- Select -
Operating incomeOperating lossSalesTotal contribution margin	$- Select -

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

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3. What if the per unit selling expense increased from $0.80 to $1.75? Calculate new values for the following: Round dollar amounts to the nearest cent and round ratio values to four decimal places:

a. Variable product cost per unit	$fill in the blank c23ef0f79024035_1
b. Total variable cost per unit	$fill in the blank c23ef0f79024035_2
c. Contribution margin per unit	$fill in the blank c23ef0f79024035_3
d. Contribution margin ratio	fill in the blank c23ef0f79024035_4
e. Total fixed expense for the year	$fill in the blank c23ef0f79024035_5

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