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Chapter 21: Q26E (page 1173)

Using variable costing, service company Refer to Exercise E21-25. The commercial business segment provided services to 200 customers. The residential business segment provided services to 400 customers. Determine the average amount Sherman Company charged each type of customer for services, the average variable cost per customer, and the average contribution margin per customer, rounded to two decimal places. What caused the difference in contribution margin in the two segments?

Short Answer

Expert verified
  • The average revenue charged for each customer for commercial and residential segments is $700 and $600 respectively.
  • Variable cost per segment for each customer for commercial and residential segments is $315 and $144 respectively
  • The contribution margin of the commercial and residential segments is $385 and $456 respectively.

Step by step solution

01

Calculation of average service revenue per customer, average variable cost per customer, and, average contribution margin per customer.

Particulars

Commercial Segment

Residential Segment

Service revenue

$140,000/200 =$700

$240,000/400 =$600

Variable cost

$63,000/200

=$315

$57,600/400 =$144

Contribution Margin

$385

$456

02

Reason forthe difference in the contribution margin in the two segments

The difference in the contribution margin in the two segments is because of the difference in the variable cost. Variable cost per unit is much lower for the residential segment as compared to the commercial segment.

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Most popular questions from this chapter

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.

Using absorption and variable costing

Meyer Company reports the following information for March:

Net Sales Revenue $ 45,300

Variable Cost of Goods Sold 12,500

Fixed Cost of Goods Sold 11,800

Variable Selling and Administrative Costs 14,000

Fixed Selling and Administrative Costs 5,400

Requirements:

  1. Calculate the gross profit and operating income for March using absorption costing.
  2. Calculate the contribution margin and operating income for March using variable costing.

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 variable costing contribution margin

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the contribution margin using variable costing when Adamson:

  1. Produces and sells 2,000 units.
  2. Produces 2,500 units and sells 2,000 units
  3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

Computing absorption cost per unit and variable cost per unit

Adamson, Inc. has the following cost data for Product X:

Direct materials $ 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

Calculate the unit product cost using absorption costing and variable costing when production is 2,000 units, 2,500 units, and 5,000 units.

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