Question

Head-First Company plans to sell 4,400 bicycle helmets at $72 each in the coming year. Unit variable cost is $43.20 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $19,000 and fixed selling and administrative expense is $29,700. Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

Answer 1

1)	Variable Cost Ratio
	= Variable cost per unit / sales price per unit
	=$43.20/72
	60%
2)	Contribution Margin Per unit = Selling price - variable cost per unit
	=$72-43.20
	$    28.80
	Contribution margin ratio = Contribution margin per unit/ sales perice per unit
	=$28.80/72
	40%
3)
	Contribution margin statement
	Sales (4400 bicycle*$72)		$         3,16,800	100%
	Less:
	Total Variable cost (4400 bicycle*$43.20)		$         1,90,080	60%
	Total Contribution margin		$         1,26,720	40%
	Less:
	Fixed factory overhead		$             19,000
	fixed selling and administrative expense		$             29,700
	Net Income		$             78,020