Suppose that Larimer Company sells a product for $19. Unit costs are as follows:
ID: 2565981 • Letter: S
Question
Suppose that Larimer Company sells a product for $19. Unit costs are as follows: Direct materials $1.95 Direct labor 1.50 Variable factory overhead 2.05 Variable selling and administrative expense 0.96 Total fixed factory overhead is $51,658 per year, and total fixed selling and administrative expense is $38,630. Required: 1. Calculate the variable cost per unit and the contribution margin per unit. 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. Enter all amounts as positive numbers.
Explanation / Answer
1 Variable cost per unit: Direct materials 1.95 Direct labor 1.5 Variable factory overhead 2.05 Variable selling and administrative expense 0.96 Variable cost per unit 6.46 Contribution margin per unit = 19-6.46= 12.54 2 Contribution margin ratio = 12.54/19= 66% Variable cost ratio = 6.46/19= 34% 3 Break-even units = Fixed expenses/Unit contribution margin = (51658+38630)/12.54= 7200 4 Sales revenue 136800 variable expenses 46512 Contribution margin 90288 Fixed expenses 90288 Net operating income 0