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. 3. Calculate the break-even units. 4. Prepare a contribution margin income statement at the break-even number of units. Enter all amounts as positive numbers.

Answer 1

1. $ 6.40

2. 68% and 32%

3. 7,000

4. a contribution margin income statement at the break-even number of units

Sales (7,000×$20.00) 140,000

Less Variable Costs (7,000×$6.40) (44,800)

Contribution 95,200

Less Fixed Costs ($56,590+$38,610) (95,200)

Net Income 0

Step-by-step explanation:

the variable cost per unit and the contribution margin per unit.

variable cost per unit

Direct materials 2.10

Direct labor 1.25

Variable factory overhead 2.00

Variable selling and administrative expense 1.05

Total 6.40

contribution margin per unit

contribution margin per unit = Sales - Variable Cost

= $20.00 - $ 6.40

= $13,60

the contribution margin ratio and the variable cost ratio

contribution margin ratio

contribution margin ratio = Contribution / sales × 100

= $13,60/$20.00× 100

= 68%

variable cost ratio

variable cost ratio = variable cost / sales × 100

= $6.40/$20.00× 100

= 32%

the break-even units

break-even units = fixed costs / contribution margin per unit

= ($56,590+$38,610)/ $13,60

= 7,000

a contribution margin income statement at the break-even number of units

Sales (7,000×$20.00) 140,000

Less Variable Costs (7,000×$6.40) (44,800)

Contribution 95,200

Less Fixed Costs ($56,590+$38,610) (95,200)

Net Income 0