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Chapter 21: Q23E (page 1172)

: Analyzing profitability Refer to Exercise E21-22. Assume the sales mix shifted to 50% for each product. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

Question: Analyzing profitability Sampler Company sells two products, Sigma and Zeta, with a sales mix of 70% and 30%, respectively. Sigma has a contribution margin per unit of \(26, and Zeta has a contribution margin per unit of \)21. The company sold 700 total units in September. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

Short Answer

Expert verified
  • The contribution margin by Sigma is $9,100 and Zeta is $7,350.
  • Total contribution margin for the company is $16,450.

Step by step solution

01

Calculation of number of units of Sigma and Zeta:

As the sales mix contain both products 50-50 % means the number of units of each product is equal.

Number of Units = Total units x Sales Mix

=700 x 50%

=350.

02

Calculation of the total amount each product contributed to the coverage of fixed costs

Particulars

Sigma

Zeta

Number of units

350

350

Contribution margin per unit

$26

$21

Contribution Margin

$9,100

$7,350

03

 Step 3: Calculation of total contribution margin for the company

Step 3: Calculation of total contribution margin for the company

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Most popular questions from this chapter

Question: Preparing absorption costing income statements, production exceeds sales

Refer to Exercise E21-16.

Requirements:

  1. Prepare the April income statement using absorption costing.
  2. Determine the product cost per unit and the total cost of the 1,000 cases in Finished Goods Inventory as of April 30.
  3. Is the April 30 balance in Finished Goods Inventory higher or lower than variable costing? Explain why

Using variable and absorption costing, making decisions

The 2018 data that follow pertain to Mike鈥檚 Magnificent Eyewear, a manufacturer of swimming goggles. (Mike鈥檚 Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced 245,000

Number of goggles sold 230,000

Sales price per unit \( 28

Variable manufacturing cost per unit 10

Sales commission cost per unit 2

Fixed manufacturing overhead 1,960,000

Fixed selling and administrative costs 260,000

Requirements:

  1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Mike鈥檚 Magnificent Eyewear for the year ended December 31, 2018.
  2. Which statement shows the higher operating income? Why?
  3. Mike鈥檚 Magnificent Eyewear鈥檚 marketing vice president believes a new sales promotion that costs \)40,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reasoning.

Preparing variable and absorption costing income statements

Claudia鈥檚 Foods produces frozen meals that it sells for \(11 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda鈥檚 Foods鈥檚 first month in business:

January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal \) 5Sales commission cost per meal 1 Total fixed manufacturing overhead 315Total fixed selling and administrative costs 450 Requirements

1. Compute the product cost per meal produced under absorption costing and under variable costing.

2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January?

Why is it appropriate to use variable costing when planning production in the short term?

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Why
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