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Chapter 21: Q11SE (page 1168)

Analyzing profitability Refer to Short Exercise S21-10. Which business segment provided the greatest total contribution margin? Which

business segment had the highest contribution margin ratio?

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

$12,000

Variable cost per unit

6,283

7,072

7,080

Short Answer

Expert verified

Answer

Midland has the highest contribution margin and contribution margin ratio.

Step by step solution

01

Calculation of net sales revenue and variable cost

Particulars

East Coast

Midland

West Coast

Net sales revenue (Units sold x Sales price per unit)

71x$10,300 =$731,300

69x$13,600 =$938,400

53x$12,000 =$636,000

Variable cost (Units sold x Variable cost per unit)

71x$6,283 =$446,093

69x$7,072 =$487,968

53x$7,080

=$375,240

02

Profitability analysis based on contribution margin

Particulars

East Coast

Midland

West Coast

Net sales revenue

$731,300

$938,400

$636,000

Less: Variable cost

$446,093

$487,968

$375,240

Contribution Margin

$285,207

$450,432

$260,760

As per the above statement, Midland has provided the greatest total contribution margin.

03

Profitability analysis based on contribution margin ratio

Particulars

East Coast

Midland

West Coast

Net sales revenue

$731,300

$938,400

$636,000

Less: Variable cost

$446,093

$487,968

$375,240

Contribution Margin

$285,207

$450,432

$260,760

Contribution margin ratio (Contribution margin/net sales revenue)

39%

48%

41%

Midland had the highest contribution margin ratio.

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Most popular questions from this chapter

Analyzing profitability

Relative Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs

Sales Price \( 1,400 \) 50

Variable manufacturing costs 1,148 21

Sales commission (8%) 112 4

Relative Furniture has three sales representatives: Abe, Brett, and Corrin. Abe sold 50 tables with 4 chairs each. Brett sold 110 tables with 6 chairs each. Corrin sold 90 tables with 8 chairs each.

Requirements:

  1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).
  2. Which sales representative has the highest contribution margin ratio? Explain why.

Question:What is a business segment? Give some examples.

Using variable costing, service company Refer to Exercise E21-25. The commercial business segment provided services to 200 customers. The residential business segment provided services to 400 customers. Determine the average amount Sherman Company charged each type of customer for services, the average variable cost per customer, and the average contribution margin per customer, rounded to two decimal places. What caused the difference in contribution margin in the two segments?

Explain how the sales mix can affect the profitability of a company.

Preparing variable and absorption costing income statements

This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is \(0. Additional data for the first month of 2020:

January 2020

Unitsproduced and sold: Sales 945 units Production 1,000 units Variable manufacturing cost per unit \) 450 Sales commission cost per unit 25 Total fixed manufacturing overhead 93,600 Total fixed selling and administrative costs 62,400

Requirements

1. Compute the product cost per unit produced under absorption costing and under variable costing.

2. Prepare income statements for January 2020 using: a. absorption costing. b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January? What causes the difference?
See all solutions

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