Contribution Margin: Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost. Formula to calculate contribution margin: Contribution margin per unit = Selling price − Variable cost Gross Margin: Gross margin is the sum total of all the revenue generated from sales after deducting all the production related costs. Formula to calculate contribution margin: Gross Margin = Total sales revenue − cost of goods sole Total sales To compute: Operating profit or loss.

Question

Bon Jovi Sports Ltd. manufactures athletic gear. One of its products is a cycling helmet that requires specialized plastic. During the quarter ending September 30, the company manufactured 4,500 helmets, using 2,500 kilograms of plastic. The plastic cost the company $16,250. According to the standard cost card, each helmet should require 0.55 kilograms of plastic at a cost of $6.80 per kilogram. Required: 1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 4,500 helmets? 2. What is the standard materials cost allowed (SQ × SP) to make 4,500 helmets? 3. What is the material's spending variance? 4. What is the material's price variance and the material's quantity variance?

Answer 1

Question

Chapter 3, Problem 3.47P

1.

To determine

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Formula to calculate contribution margin:

Contribution margin per unit=Selling price−Variable cost

Gross Margin:

Gross margin is the sum total of all the revenue generated from sales after deducting all the production related costs.

Formula to calculate contribution margin:

Gross Margin=Total sales revenue−cost of goods soleTotal sales

To compute: Operating profit or loss.

2.

To determine

To compute: Operating profit or loss.

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Bon Jovi Sports Ltd. manufactures athletic gear. One of its products is a cycling helmet that requires specialized plastic. During the quarter ending September 30, the company manufactured 4,500 helmets, using 2,500 kilograms of plastic. The plastic cost the company $16,250. According to the standard cost card, each helmet should require 0.55 kilograms of plastic at a cost of $6.80 per kilogram. Required: 1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 4,500 helmets? 2. What is the standard materials cost allowed (SQ × SP) to make 4,500 helmets? 3. What is the material's spending variance? 4. What is the material's price variance and the material's quantity variance?

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