Question

Figure 4-3: Wadsworth Company makes bass lures. Information on cost per unit is as follows:

Direct materials $2.50

Direct labor 1.20

Variable overhead 0.50

Fixed overhead 1.00

Fixed marketing expense totaled $13,000 and fixed administrative expense totaled $35,000. The price per lure is $10.Expected sales are 500 Units. What is the total contribution margin expected?

Answer 1

Calculation of total contribution margin.

Particulars	Amount
Sales ($10×500)	$5,000
Less : variable expenses
Direct materials ($2.5×500)	$1250
Direct labour ($1.2×500)	$600
Variable overhead ($0.50×500)	$250
Contribution margin	$2,900

Note:

Direct materials and direct labour are Variable expenses as they change with respect to the output.

Fixed overhead, fixed marketing expenses and fixed administrative expenses will not be considered for calculating contribution margin.