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Chapter 21: Q8SE (page 1168)

Computing variable costing contribution margin

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the contribution margin using variable costing when Adamson:

  1. Produces and sells 2,000 units.
  2. Produces 2,500 units and sells 2,000 units
  3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

Short Answer

Expert verified

Answer

  1. Contribution margin =$140,000
  2. Contribution margin =$140,000
  3. Contribution margin =$140,000

Step by step solution

01

Calculation of unit product cost using variable costing

Units Produced

2,000 Units

2,500 Units

5,000 Units

Direct material

$41

$41

$41

Direct labor

$57

$57

$57

Variable manufacturing overhead

$7

$7

$7

Total unit product cost

$105

$105

$105

02

Calculation of contribution margin (a, b, c) :

Particulars

Produce and sell 2,000 units

Produce 2,500 and sell 2,000 units

Produce 5,000 and sell 2,000 units

Net sales revenue

2,000*$175

=$350,000

2,000*$175

=$350,000

2,000*$175

=$350,000

Less: Variable costs

2,000*$105

=$210,000

2,000*$105

=$210,000

2,000*$105

=$210,000

Contribution margin

$140,000

$140,000

$140,000

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Most popular questions from this chapter

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

What is absorption costing?

Pierce Company had the following costs:

Units produced

500 units Manufacturing costs:

Direct materials

$ 25 per unit Direct labor

45 per unit Variable manufacturing overhead

15 per unit Fixed manufacturing overhead

5,000 per year Selling and administrative costs:

Variable selling and administrative costs

30 per unit Fixed selling and administrative costs

3,200 per year

Calculate the unit product cost using absorption costing and variable costing

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.

Analyzing profitability

Relative Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs

Sales Price \( 1,400 \) 50

Variable manufacturing costs 1,148 21

Sales commission (8%) 112 4

Relative Furniture has three sales representatives: Abe, Brett, and Corrin. Abe sold 50 tables with 4 chairs each. Brett sold 110 tables with 6 chairs each. Corrin sold 90 tables with 8 chairs each.

Requirements:

  1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).
  2. Which sales representative has the highest contribution margin ratio? Explain why.
See all solutions

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