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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

Computing absorption costing gross profit

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

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

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

Explain how the sales mix can affect the profitability of a company.

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the โ€œcandy seasonโ€ from Halloween through Valentineโ€™s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

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