
A.1.
Variable Costing
Managers frequently use variable costing for internal purposes for taking decision making. The cost of goods manufactured includes direct materials, direct labor, and variable factory
Contribution Margin
Contribution margin is the excess of manufacturing margin above selling and administrative expenses. Contribution margin is calculated by deducting the variable cost from sales or deducting variable selling and administrative expenses from manufacturing margin.
To calculate: The contribution margin ratio for each salesperson.
A.1.

Explanation of Solution
The contribution margin ratio for each salesperson is as follows:
Rene
HO Incorporation | |
Contribution margin by salesperson (Northeast) | |
Particulars | Rene ($) |
Sales
|
558,000 |
Less: Variable cost
|
334,800 |
Manufacturing margin | 223,200 |
Less: Variable selling expense
|
44,640 |
Contribution margin (B) | 178,560 |
Contribution margin ratio
|
32.00% |
Table (1)
Steve
HO Incorporation | |
Contribution margin by salesperson (Northeast) | |
Particulars | Steve ($) |
Sales
|
384,000 |
Less: Variable cost
|
192,000 |
Manufacturing margin | 192,000 |
Less: Variable selling expense
|
46,080 |
Contribution margin (B) | 145,920 |
Contribution margin ratio
|
38.00% |
Table (2)
Colleen
HO Incorporation | |
Contribution margin by salesperson (Southwest) | |
Particulars | Colleen ($) |
Sales
|
560,000 |
Less: Variable cost
|
336,000 |
Manufacturing margin | 224,000 |
Less: Variable selling expense
|
56,000 |
Contribution margin (B) | 168,000 |
Contribution margin ratio
|
30.00% |
Table (3)
Paul
HO Incorporation | |
Contribution margin by salesperson (Southwest) | |
Particulars | Paul ($) |
Sales
|
1,080,000 |
Less: Variable cost
|
540,000 |
Manufacturing margin | 540,000 |
Less: Variable selling expense
|
86,400 |
Contribution margin (B) | 453,600 |
Contribution margin ratio
|
42.00% |
Table (4)
Therefore, contribution margin of Rene is $178,560, Steve is $145,920, Colleen is $168,000, and Paul is $453,600. Contribution margin ratio of Rene is 32%, Steve is 38%, Colleen is 30%, and Paul is 42%.
B.1.
To calculate: The contribution margin ratio for each territory.
B.1.

Explanation of Solution
The contribution margin ratio for each territory is as follows:
Northeast
HO Incorporation | |
Contribution margin by territory | |
Particulars | Northeast |
Sales
|
942,000 |
Less: Variable cost
|
526,800 |
Manufacturing margin | 415,200 |
Less: Variable selling expense
|
90,720 |
Contribution margin (B) | 324,480 |
Contribution margin ratio
|
34.45% |
Table (5)
Southwest
HO Incorporation | |
Contribution margin by territory | |
Particulars | Southwest |
Sales
|
1,640,000 |
Less: Variable cost
|
876,000 |
Manufacturing margin | 764,000 |
Less: Variable selling expense
|
142,400 |
Contribution margin (B) | 621,600 |
Contribution margin ratio
|
37.90% |
Table (6)
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Chapter 6 Solutions
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