Explanation Contribution Margin: It is defined as the difference between the sales and the variable cost. In other words, contribution margin is the excess amount of sales revenue after deducting variable expenses. The formula to calculate contribution margin is as follows: Contribution Margin = Sales − Variable costs Contribution Margin ratio: It is a ratio that measures the contribution margin generated by the company from the sales to make it avialable for paying the fixed cost and generate a profit. It is expressed as percentage of margin available from each dollar sales to pay fixed expenses and to provide profit. The formula to calculate the contribution margin ratio is as follows: Contribution Margin Ratio = Contribution Margin Sales × 100 Determine the missing amounts in the table for products A, B, and C. Particulars A B C Number of units 2,064 units (d) 20,900 units 2,570units Sales price per unit $250 $125 (g) $5,660 Variable costs per unit (a) $125 $50 $4,528 Contribution margin per unit $125 (e) $75 (h) $1,132 Total contribution margin (b) $258,000 1,567,500 (i) $2,909,240 Contribution margin ratio (c) 50% (f) 60% 20% Table (1) Calculation: (a) Calculate variable cost per unit. Variable cost per unit = Sales price per unit – Contribution margin per unit = $ 250 − $ 125 = $ 125 (b) Calculate total contribution margin. Total contribution margin = Number of units × Contribution margin per unit = 2 , 064 units × $ 125 = $ 258 , 000 (c) Calculate contribution margin ratio. Contribution margin ratio = Contribution margin per unit Sales revenue per unit × 100 = $ 125 $250 × 100 = 50 % (d) Calculate number of units. Number of units = Total contribution margin Contribution margin per unit = $1,567,500 $125 − $50 = $1,567,500 $75 = 20 , 900 units (e) Calculate contribution margin per unit. Contribution per margin per unit = Sales price per unit – Variable cost per unit = $ 125 − $ 50 = $ 75 (f) Calculate contribution margin ratio

Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)

6th Edition

ISBN: 9780134486857

Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura

Publisher: PEARSON

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Chapter 20, Problem 26E

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Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its job cost sheet reports direct materials of $7,000, direct labor of $3,400, and applied overhead of $2,890. Custom Cabinetry applies overhead at the rate of 85% of direct labor cost. During July, Job 120 is sold (on credit) for $26,000, Job 121 is started and completed, and Job 122 is started and still in process at the end of July. Custom Cabinetry incurs the following costs during July. Job 120 Direct materials used Direct labor used $ 2,300 3,400 Job 121 $ 7,100 4,700 Job 122 $ 2,600 3,700 1. Prepare journal entries for the following July transactions and events a through e. a. Direct materials used. b. Direct labor used. c. Overhead applied. d. Sale of Job 120. e. Cost of goods sold for Job 120. Hint. Job 120 has costs from June and July. 2. Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts. (There were no jobs in Finished Goods Inventory at June…

Chapter 20 Solutions

Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)

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Determine the missing amounts in the table for products A, B, and C.

Solution Summary: The author determines the missing amounts in the table for products A, B, and C. Contribution margin is defined as the difference between the sales and the variable cost.

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Determine the missing amounts in the table for products A, B, and C.

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