Question

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.

Answer 1

Answer:

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