Posted: August 4th, 2016

What is the contribution margin ratio?

Scenario:
Horatio Ltd. uses job order costing to measure and track product costs. Horatio has determined that machine hours drive its manufacturing overhead costs. During the month of June, the following data were available for Product #80:

Direct Labor 350 hours at $10 per hour
Direct Materials= 40 square yards at $25/yard
Machine hours used – 1,000 hours

Question:
If total manufacturing overhead costs during the month totaled $10,000 when a total of 25,000 machine hours were used, what will be the total manufacturing cost of Product #80?
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Hunter Inc. sells a unique product with the following information available:

Sales price – $85 per unit
Variable costs- $25 per unit
Fixed costs- $10,000
Units produced and sold – 1,250

1. If one more unit is sold, net income will:

a) decrease by $33
b) increase by $52
c) increase by $60
d) decrease by $8

2. What is the contribution margin ratio?

a) 41.67%
b) 2.40%
c) 70.59%
d) 61.18%

Please provide detailed analysis.