Question

Suppose that Larimer Company sells a product for $24. Unit costs are as follows:

Answer 1

Answer:

a)

Variable cost per unit=$10.08

Contribution per unit=$13.92

b)

Contribution margin ratio=58%

Variable cost ratio= 42%

c) Break-even units=3,000 units

Explanation:

Variable cost per unit

= 4.98 + 2.10 + 1.00 + 2.00 = $10.08

Variable cost per unit=$10.08

Contribution per unit = Selling price per unit - Variable cost per unit

                                  = 24 - 10.08  =13.92

Contribution per unit=$13.92

b)

Contribution margin ratio=  contribution/selling price= 13.92/24 × 100=58%

Contribution margin ratio=58%

Variable cost ratio = variable cost/selling price= 10.08 /24× 100 = 42%

Variable cost ratio=42%

c)

Break-even units = Total general fixed cost/contribution per unit

                           = (26,500 + 15,260)/  13.92     = 3000 units

Break-even units=3,000 units