Variable Cost Ratio, Contribution Margin Ratio

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $20,000 and fixed selling and administrative expense is $29,500.

Required:

1. Calculate the variable cost ratio.

%

2. Calculate the contribution margin ratio.

%

Question

Business

Tanya Terry

29 July, 06:54

Variable Cost Ratio, Contribution Margin Ratio

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $20,000 and fixed selling and administrative expense is $29,500.

Required:

1. Calculate the variable cost ratio.

%

2. Calculate the contribution margin ratio.

%

+5

Answers (1)

Know the Answer?

Raul Galloway · Answer 1

Instructions are listed below.

Explanation:

Giving the following information:

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. The unit variable cost is $45. Fixed factory overhead is $20,000 and fixed selling and administrative expense is $29,500.

To calculate the variable cost ratio, we need to use the following formula:

Variable cost ratio = unitary variable cost / selling price

Variable cost ratio = 45/75 = 0.6

The contribution margin rate is the difference between the contribution margin and the selling price:

CM ratio = Contribution margin / selling price

CM ratio = (75 - 45) / 75 = 0.4