Q-21-4T - Horngren'S Financial And Managerial Accounting

Question

Question: Chaney Company provides lawn care services. Following are data for a recent week: 

Service Revenue                               \(1,300 

Variable Costs                                    \)780              

Contribution Margin                               $520                                                                   Chaney provided service to 25 customers during the week. Determine the average amount the company charged each customer, the variable cost per customer, and the contribution margin ratio.

 

Step-by-Step Solution

Answer

Answer

 

The average service price is $52, the variable cost per unit is $31.20, and the contribution margin ratio is 40%.

 

Step 1: Calculation of the average amount the company charged each customer

Average service price = Service Revenue/No. of customers

=$1,300/25

=$52

Step 2: Calculation of variable cost per customer

Variable cost per customer = Variable cost/No. of customers

=$780/25

=$31.20

Step 3: Profitability analysis based on contribution margin ratio

Particulars	Amount
Net sales revenue	$1,300
Less: Variable cost	$780
Contribution Margin	$520
Contribution margin ratio (Contribution margin/net sales revenue)	40%