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Chapter 21: Q25E (page 1172)

Using variable costing, service company Sherman Company provides carpet cleaning services to commercial and residential customers. Using the data below, determine the contribution margin ratio for each business segment, rounded to two decimal places:

Short Answer

Expert verified

The contribution margin ratio of the commercial and residential segmentsis 55% and 76% respectively.

Step by step solution

01

Calculation of total contribution margin ratio for the commercial segment

Contribution Margin Ratio = Contribution Margin / Service Revenue

=$77,000/$140,000

=55%

02

Calculation of total contribution margin ratio for the residential segment

Contribution Margin Ratio = Contribution Margin / Service Revenue

=$182,400/$240,000

=76%

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Most popular questions from this chapter

How are absorption costing and variable costing the same? How are they different?

When units produced exceed units sold, how does operating income differ between variable costing and absorption costing? Why?

Question: Using variable costing, service company

Divine Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of August:

Requirements

1. Calculate the contribution margin ratio for each business segment.

2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.

3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?

Computing inventory balances

Zeng Company reports the following data:

Finished Goods Inventory:

Beginning balance, in units 300 Units

Produced 2,900

Units sold (1,600)

Ending balance, in units 1,600

Production Costs: Variable manufacturing costs per unit $ 57

Total fixed manufacturing costs 26,100

Calculate the product cost per unit and the total cost of the 1,600 units in ending inventory using absorption costing and variable costing.

Question: Preparing variable costing income statements, production exceeds sales

ReVitalAde produced 13,000 cases of powdered drink mix and sold 12,000 cases in April 2018. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing overhead and $9,000 selling and administrative). The company had no beginning Finished Goods Inventory.

Requirements:

  1. Prepare the April income statement using variable costing.
  2. Determine the product cost per unit and the total cost of the 1,000 cases in Finished Goods Inventory as of April 30.
See all solutions

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