Suppose that Larimer Company sells a product for $19. Unit costs are as follows:

Question

Suppose that Larimer Company sells a product for $19. Unit costs are as follows:

Total fixed factory overhead is $55,520 per year, and total fixed selling and administrative expense is $38,530.

Prepare a contribution margin income statement at the break-even number of units. Enter all amounts as positive numbers.

1. Calculate the variable cost per unit and the contribution margin per unit. Round your answers to two decimal places.

2. Calculate the contribution margin ratio and the variable cost ratio.

3. Calculate the break-even units.

4. Prepare a contribution margin income statement at the break-even number of units. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement. Enter all amounts as positive numbers.

Larimer Company

Contribution Margin Income Statement

At Break-Even Number of Units

1

2

3

4

5

Direct materials $2.05 Direct labor 1.20 Variable factory overhead 2.15 Variable selling and administrative expense 1.06

Explanation / Answer

1) Variable cost per unit = 6.46 per unit

Contribution margin per unit = 19-6.46 = 12.54 per unit

2) Variable cost ratio = 6.46*100/19 = 34%

Contribution margin ratio = 12.54*100/19 = 66%

3) Break even point = 94050/12.54 = 7500 units

4. Prepare a contribution margin income statement at the break-even number of units

Sales (7500*19) 142500 Variable cost (7500*6.46) (48450) Contribution margin 94050 Fixed cost (94050) Net operating income 0

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