Q24E - Horngren'S Financial And Managerial Accounting

Question

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

Step-by-Step Solution

Answer

The contribution margin ratio of the companyis $60%

Step 1: Calculation of total contribution margin and contribution margin per service call

Particulars	Total
Service revenue (220x170)	$37,400
Less: Variable cost (220x68)	$14,960
Contribution Margin	$22,440

Step 2: Calculation of total contribution margin ratio for the company

Contribution Margin Ratio = Contribution Margin / Service Revenue

                                            =$22,440/$37,400

                                            =60%