Problem 3.Variable Cost Ratio, Contribution Margin Ratio Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. The unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $20,000 and fixed selling and administrative expense are $29,500. Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, the total variable cost, and the total contribution margin.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Problem 3.Variable Cost Ratio, Contribution Margin Ratio
Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. The unit variable cost is $45 (includes direct materials, direct labor, variable factory
expense). Fixed factory overhead is $20,000 and fixed selling and administrative expense are $29,500.
Required:
1. Calculate the variable cost ratio.
2. Calculate the contribution margin ratio.
3. Prepare a contribution margin income statement based on the budgeted figures for next
year. In a column next to the income statement, show the percentages based on sales for
sales, the total variable cost, and the total contribution margin.
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