VARIABLE COST RATIO, CONTRIBUTION MARGIN RATIO Head-First Company plans to sell 5,000 bicycle helmets at $70 each in the coming year.

Unit variable cost is $49 (includes direct materials, direct labor, variable overhead, and variable selling expense). Fixed factory overhead is $14,000 and fixed selling and administrative expense is $15,400.

Required:

. Calculate the variable cost ratio.

. Calculate the contribution margin cost ratio.

. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable costs, and total contribution margin.

Cornerstone Exercise