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.

Question

Oliver Duran

Business

29 April, 15:13

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.

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Answers (1)

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Solomon Crosby · Answer 1

Instructions are listed below.

Explanation:

Giving the following information:

The company plans to sell 3,500 pairs of shoes at $60 each in the coming year. The unit variable cost is $21.

1) We need to use the following formula:

variable cost ratio = Variable cost / selling price

variable cost ratio = 21/60 = 0.35

2) We need to use the following formula:

Contribution margin ratio = (selling price - unitary variable cost) / selling price

Contribution margin ratio = (60 - 21) / 60 = 0.65