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23 October, 16:17

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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  1. 23 October, 18:56
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    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
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