Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN: 9781337115773

Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher: Cengage Learning

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Textbook Question

Chapter 7, Problem 26BEB

Variable Cost Ratio, Contribution Margin Ratio

Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $30,000 and fixed selling and administrative expense is $48,000.

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, total variable cost, and total contribution margin.

Expert Solution & Answer

Chapter 7 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making

Ch. 7 - Prob. 1DQ Ch. 7 - Describe the difference between the units sold...Ch. 7 - Define the term break-even point.Ch. 7 - Prob. 4DQ Ch. 7 - What is the variable cost ratio? The contribution...Ch. 7 - Prob. 6DQ Ch. 7 - Define the term sales mix. Give an example to...Ch. 7 - Explain how CVP analysis developed for single...Ch. 7 - Prob. 9DQ Ch. 7 - How does targeted profit enter into the break-even...

Ch. 7 - Explain how a change in sales mix can change a...Ch. 7 - Define the term margin of safety. Explain how it...Ch. 7 - Explain what is meant by the term operating...Ch. 7 - How can sensitivity analysis be used in...Ch. 7 - Why is a declining margin of safety over a period...Ch. 7 - If the variable cost per unit goes down,Ch. 7 - The amount of revenue required to earn a targeted...Ch. 7 - Prob. 3MCQ Ch. 7 - Prob. 4MCQ Ch. 7 - An important assumption of cost-volume-profit...Ch. 7 - The use of fixed costs to extract higher...Ch. 7 - Prob. 7MCQ Ch. 7 - The contribution margin is the a. amount by which...Ch. 7 - Dartmouth Company produces a single product with a...Ch. 7 - Dartmouth Company produces a single product with a...Ch. 7 - If a companys total fixed cost decreases by...Ch. 7 - Prob. 12MCQ Ch. 7 - Variable Cost, Fixed Cost, Contribution Margin...Ch. 7 - Prob. 14BEA Ch. 7 - Variable Cost Ratio, Contribution Margin Ratio...Ch. 7 - Prob. 16BEA Ch. 7 - Units to Earn Target Income Head-First Company...Ch. 7 - Sales Needed to Earn Target Income Head-First...Ch. 7 - Break-Even Point in Units for a Multiple-Product...Ch. 7 - Prob. 20BEA Ch. 7 - Margin of Safety Head-First Company plans to sell...Ch. 7 - Degree of Operating Leverage Head-First Company...Ch. 7 - Impact of Increased Sales on Operating Income...Ch. 7 - Variable Cost, Fixed Cost, Contribution Margin...Ch. 7 - Prob. 25BEB Ch. 7 - Variable Cost Ratio, Contribution Margin Ratio...Ch. 7 - Prob. 27BEB Ch. 7 - Units to Earn Target Income Chillmax Company plans...Ch. 7 - Sales Needed to Earn Target Income Chillmax...Ch. 7 - Prob. 30BEB Ch. 7 - Prob. 31BEB Ch. 7 - Margin of Safety Chillmax Company plans to sell...Ch. 7 - Prob. 33BEB Ch. 7 - Impact of Increased Sales on Operating Income...Ch. 7 - Basic Break-Even Calculations Suppose that Larimer...Ch. 7 - Price, Variable Cost per Unit, Contribution...Ch. 7 - Contribution Margin Ratio, Variable Cost Ratio,...Ch. 7 - Prob. 38E Ch. 7 - Prob. 39E Ch. 7 - Margin of Safety Comer Company produces and sells...Ch. 7 - Prob. 41E Ch. 7 - Sales Revenue Approach, Variable Cost Ratio,...Ch. 7 - Prob. 43E Ch. 7 - Cherry Blossom Products Inc. produces and sells...Ch. 7 - Prob. 45E Ch. 7 - Lotts Company produces and sells one product. The...Ch. 7 - Klamath Company produces a single product. The...Ch. 7 - Margin of Safety and Operating Leverage Medina...Ch. 7 - Parker Pottery produces a line of vases and a line...Ch. 7 - Jellico Inc.s projected operating income (based on...Ch. 7 - Break-Even Units, Contribution Margin Ratio,...Ch. 7 - Prob. 52P Ch. 7 - Aldovar Company produces a variety of chemicals....Ch. 7 - Basu Company produces two types of sleds for...Ch. 7 - Cost-Volume-Profit Equation, Basic Concepts,...Ch. 7 - Contribution Margin Ratio, Break-Even Sales,...Ch. 7 - Prob. 57P Ch. 7 - Polaris Inc. manufactures two types of metal...Ch. 7 - Cost-Volume-Profit, Margin of Safety Victoria...Ch. 7 - Abraham Company had revenues of 830,000 last year...Ch. 7 - Prob. 61P Ch. 7 - Prob. 62P Ch. 7 - Prob. 63P Ch. 7 - Suppose that Kicker had the following sales and...Ch. 7 - Danna Lumus, the marketing manager for a division...Ch. 7 - Cost-Volume-Profit Analysis, Single-Product...Ch. 7 - Cost-Volume-Profit Analysis, Single-Product...Ch. 7 - Prob. 3MTC Ch. 7 - Prob. 4MTC Ch. 7 - Sensitivity Cost-Volume-Profit Analysis and...Ch. 7 - Calculate the hotels margin of safety (both in...

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Solution Summary: The author calculates the variable cost ratio, which is 35%, and the contribution margin ratio.

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Chapter 7 Solutions