Suppose that Adams Company sells a product for $24. Unit costs are as follows: Direct materials.............................................$5.85 Direct

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Suppose that Adams Company sells a product for $24. Unit costs are as follows:

Direct materials.............................................$5.85

Direct labour.................................................2.10

Variable overhead............................................3.15

Variable selling and administrative expense............2.40

Total fixed manufacturing overhead is $78,000 per year, and total fixed selling and administrative expense is $56,925.

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.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Cornerstones of Managerial Accounting

ISBN: 978-0176530884

2nd Canadian edition

Authors: Maryanne M. Mowen, Don Hanson, Dan L. Heitger, David McConomy, Jeffrey Pittman

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