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Chapter 21: Q12SE (page 1168)

Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:

For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.

Which type of service is more profitable?

Short Answer

Expert verified

Answer

Contribution per customer for commercial and residential services is $118.4 and $74.4 respectively. Commercial service is more profitable.

Step by step solution

01

Calculation of contribution margin per customer and contribution margin ratio

Particulars

Commercial

Residential

Total

Number of customers

200

600

800

Service revenue

$32,000

$72,000

$104,000

Less: Variable cost

$8,320

$27,360

$35,680

Contribution Margin

$23,680

$44,640

$68,320

Contribution margin per customer (Contribution margin/number of customers)

$118.40

$74.40

Contribution margin ratio (Contribution margin/net sales revenue)

74%

62%

02

Profitability analysis based on contribution margin per customer and contribution margin ratio

As per the contribution margin per customer and contribution margin ratio, commercial service is more profitable, because it has high contribution margin per customer and high contribution margin ratio.

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Most popular questions from this chapter

Using variable and absorption costing, making decisions The 2018 data that follow pertain to Eli鈥檚 Electric Eyewear, a manufacturer of swimming goggles. (Eli鈥檚 Electric Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced 245,000 Number of goggles sold 215,000 Sales price per unit \( 22Variable manufacturing cost per unit 8Sales commission cost per unit 5Fixed manufacturing overhead 1,470,000 Fixed selling and administrative costs 250,000 Requirements

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Eli鈥檚 Electric Eyewear for the year ended December 31, 2018.

2. Which statement shows the higher operating income? Why?

3. Eli鈥檚 ElectricEyewear鈥檚 marketing vice president believes a new sales promotion that costs \)60,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reasoning.

Computing unit product cost, variable costing Calculate the unit product cost using variable costing. Round your answer to the nearest cent.

Use the following information for Short Exercises S21-2 and S21-3.

Martin Company had the following costs:

Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit Fixed selling and administrative costs 1,920 per year

Question: Chaney Company provides lawn care services. Following are data for a recent week:

Service Revenue \(1,300

Variable Costs \)780

Contribution Margin $520 Chaney provided service to 25 customers during the week. Determine the average amount the company charged each customer, the variable cost per customer, and the contribution margin ratio.

Question:What is a business segment? Give some examples.

Question: Computing variable costing operating income Refer to the information for Concord, Inc.

Requirements:

  1. Using variable costing, calculate the unit product cost.
  2. Prepare an income statement using the contribution margin format.

Use the following information for Exercises E21-14 and E21-15.

Concord, Inc. has collected the following data for November (there are no beginning inventories):

Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month

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