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7 June, 15:30

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.

%

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Answers (1)
  1. 7 June, 16:37
    0
    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
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