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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

Question: Preparing absorption costing income statements, production exceeds sales

Refer to Exercise E21-16.

Requirements:

  1. Prepare the April income statement using absorption 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.
  3. Is the April 30 balance in Finished Goods Inventory higher or lower than variable costing? Explain why

Using variable costing, service company Henry’s Helpers provides locksmith services. One type of service call is to evaluate private residences for security concerns and make recommendations for a safety plan. Use the data below to determine the company’s total contribution margin, contribution margin per service call, and contribution margin ratio when 220 service calls are made in the month of June.

Service Revenue $ 170 per service call

Variable Costs 68 per service call

Fixed Costs 21,040 per month

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

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

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.
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