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Chapter 21: Q-21-4T (page 1161)

Question: Chaney Company provides lawn care services. Following are data for a recent week:

Service Revenue \(1,300

Variable Costs \)780

Contribution Margin $520 Chaney provided service to 25 customers during the week. Determine the average amount the company charged each customer, the variable cost per customer, and the contribution margin ratio.

Short Answer

Expert verified

Answer

The average service price is $52, the variable cost per unit is $31.20, and the contribution margin ratio is 40%.

Step by step solution

01

Calculation of the average amount the company charged each customer

Average service price = Service Revenue/No. of customers

=$1,300/25

=$52

02

Calculation of variable cost per customer

Variable cost per customer = Variable cost/No. of customers

=$780/25

=$31.20

03

Profitability analysis based on contribution margin ratio

Particulars

Amount

Net sales revenue

$1,300

Less: Variable cost

$780

Contribution Margin

$520

Contribution margin ratio (Contribution margin/net sales revenue)

40%

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Most popular questions from this chapter

Using variable and absorption costing, making decisions

The 2018 data that follow pertain to Mike’s Magnificent Eyewear, a manufacturer of swimming goggles. (Mike’s Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced 245,000

Number of goggles sold 230,000

Sales price per unit \( 28

Variable manufacturing cost per unit 10

Sales commission cost per unit 2

Fixed manufacturing overhead 1,960,000

Fixed selling and administrative costs 260,000

Requirements:

  1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Mike’s Magnificent Eyewear for the year ended December 31, 2018.
  2. Which statement shows the higher operating income? Why?
  3. Mike’s Magnificent Eyewear’s marketing vice president believes a new sales promotion that costs \)40,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reasoning.

In the long run, all costs are controllable. Is this statement true? Why or why not?

Using absorption and variable costing

Meyer Company reports the following information for March:

Net Sales Revenue $ 45,300

Variable Cost of Goods Sold 12,500

Fixed Cost of Goods Sold 11,800

Variable Selling and Administrative Costs 14,000

Fixed Selling and Administrative Costs 5,400

Requirements:

  1. Calculate the gross profit and operating income for March using absorption costing.
  2. Calculate the contribution margin and operating income for March using variable costing.

Computing unit product cost, absorption costing Calculate the unit product cost using absorption costing. Round your answer to the nearest cent.

Use the following information for Short Exercises S21-2 and S21-3.

Martin Company had the following costs:

Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit

Fixed selling and administrative costs 1,920 per year

Using variable and absorption costing, making decisions The 2018 data that follow pertain to Eli’s Electric Eyewear, a manufacturer of swimming goggles. (Eli’s Electric Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced 245,000 Number of goggles sold 215,000 Sales price per unit \( 22Variable manufacturing cost per unit 8Sales commission cost per unit 5Fixed manufacturing overhead 1,470,000 Fixed selling and administrative costs 250,000 Requirements

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Eli’s Electric Eyewear for the year ended December 31, 2018.

2. Which statement shows the higher operating income? Why?

3. Eli’s ElectricEyewear’s marketing vice president believes a new sales promotion that costs \)60,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reasoning.
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