Question

Suppose that Larimer Company sells a product for $20. Unit costs are as follows: Direct materials $2.10 Direct labor 1.25 Variable factory overhead 2.00 Variable selling and administrative expense 1.05 Total fixed factory overhead is $56,590 per year, and total fixed selling and administrative expense is $38,610. 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.

Answer 1

Contribution Margin 13.6

Contribution Margin Ratio 0.68

Variable Cost ratio 0.32

Step-by-step explanation:

Sales Price 20

Direct materials 2.10

Direct labor 1.25

Variable factory overhead 2.00

Variable selling and administrative expense 1.05

Total Variable cost 6.4

`Contribution \: per \: unit * units \: sold = Total \: Contribution \: Margin`

20 - 6.4 = 13.6 Contribution Margin

`(Contribution \:  Margin)/(Sales \: Revenue) = $Contribution Margin Ratio`

13.6/20 = 0.68

`(Variable \:  Cost )/(Sales \: Revenue) = $Variable Cost Ratio`

6.4/20 = 0.32