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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. % 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. Enter amounts as positive numbers. Chillmax Company Contribution Margin Income Statement For the Coming Year Percent of Sales Sales $

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Answer:

Contribution Margin Income Statement

Sales (3,500 × $60)                                      $210,000            100%

Less Variable Costs (3,500 × $21)               ($73,500)             35%

Contribution                                                  $136,500              65%

Less Fixed Costs :

Fixed Factory Overhead Costs                   ($30,000)

Fixed Selling and Administrative Costs      ($48,000)

Net Income / (Loss)                                        $58,500

Explanation:

Variable Cost Ratio = Variable Cost / Sales × 100

                                =  $21 / $60 × 100

                                =  35 %

Contribution Margin Ratio = Contribution / Sales × 100

                                           = ($60 - $21) / $60 × 100

                                           = 65%

Contribution Margin Income Statement

Sales (3,500 × $60)                                      $210,000            100%

Less Variable Costs (3,500 × $21)               ($73,500)             35%

Contribution                                                  $136,500              65%

Less Fixed Costs :

Fixed Factory Overhead Costs                   ($30,000)

Fixed Selling and Administrative Costs      ($48,000)

Net Income / (Loss)                                        $58,500

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