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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

: Analyzing profitability Refer to Exercise E21-22. Assume the sales mix shifted to 50% for each product. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

Question: Analyzing profitability Sampler Company sells two products, Sigma and Zeta, with a sales mix of 70% and 30%, respectively. Sigma has a contribution margin per unit of \(26, and Zeta has a contribution margin per unit of \)21. The company sold 700 total units in September. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

: Before you begin this assignment, review the Tying It All Together feature in the chapter. CF Industries Holdings, Inc. is one of the largest manufacturers and distributors of nitrogen fertilizer and other nitrogen products in the world. The corporation often produces and stores large amounts of inventory during periods of low demand to ensure that there is enough product to meet the demand of peak seasons. Assume that one line of fertilizer (with no beginning Finished Goods Inventory) had the following data during a time period of low demand:

Sales price $ 20.00 per case Variable manufacturing costs 4.00 per case Fixed manufacturing costs 100,000 per quarter Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 45,000 per quarter Given that the time period has low demand, assume the company produced 1,000,000 cases but only sold 250,000 cases.

Requirement

1. Prepare the income statement for the quarter using variable costing.

2. Prepare the income statement for the quarter using absorption costing.

3. Why, if at all, is there a difference between operating income under the two methods?

Question: Preparing variable costing income statements, production exceeds sales

ReVitalAde produced 13,000 cases of powdered drink mix and sold 12,000 cases in April 2018. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing overhead and $9,000 selling and administrative). The company had no beginning Finished Goods Inventory.

Requirements:

  1. Prepare the April income statement using variable costing.
  2. Determine the product cost per unit and the total cost of the 1,000 cases in Finished Goods Inventory as of April 30.

Question: Preparing absorption costing income statements, production less than sales

Refer to Exercise E21-19.

Requirements

  1. Prepare the May income statement using absorption costing.
  2. Is operating income using absorption costing higher or lower than variable costing income? Explain why.
  3. Determine the balance in Finished Goods Inventory as of May 31.

Why is it appropriate to use variable costing when planning production in the short term?
See all solutions

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