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Analyzing profitabilityFather Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs Sales Price \( 800 \) 70 Variable manufacturing costs 60025Sales commission (10%) 807Relative Furniture has three sales representatives: Adam, Ben, and Caleb. Adam sold 100 tables with 6 chairs each. Ben sold 110 tables with 4 chairs each. Caleb sold 80 tables with 8 chairs each.

Requirements

1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).

2. Which sales representative has the highest contribution margin ratio? Explain why.

Short Answer

Expert verified
  1. The contribution margin ratio ofAdam, Ben and Caleb is25.21% and 25.12% and 25.34%respectively.
  2. Caleb has highest contribution margin ratio because of appropriate sales mix.

Step by step solution

01

Calculation of total contribution and the contribution margin ratio for each sales representative (a)

Particulars

Adam (100 tables and 6 Chairs)

Ben (110 tables and 4 Chairs)

Caleb (80 tables and 8 Chairs)

Sales price

($800*100+$70*6) =$80,420

($800*110+$70*4) =$88,280

($800*80+$70*8) =$64,560

Variable cost

($600*100+$25*6) =$60,150

($600*110+$25*4) =$66,100

($600*80+$25*8) =$48,200

Contribution Margin

$20,270

$22,180

$16,360

Contribution margin ratio (Contribution margin/Sales)

$20,270/$80,420=25.21%

$22,180/$88,280 =25.12%

$16,360/$64,560 =25.34%

02

Reason of difference in the contribution margin ratio between sales representatives (b)

Caleb has the highest contribution margin ratio because of the appropriate sales mix.

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Most popular questions from this chapter

Preparing variable and absorption costing income statements

This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is \(0. Additional data for the first month of 2020:

January 2020

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Requirements

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Question: Communication Activity 21-1

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