Question

2.Wuntch Products sold 100,000 units last year for $2.00 each. Variable costs per unit were $0.30 for direct materials, $0.50 for direct labor, and $0.30 for variable overhead. Fixed costs were $60,000 in manufacturing overhead and $40,000 in nonmanufacturing costs.

a. What is the total contribution margin?

b. What is the unit contribution margin?

c. What is the contribution margin ratio?

d. If sales increase by 20,000 units, by how much will profits increase?

Answer 1

A.

Sales(100,000×$2)	$200,000
Less: Variable expenses (100,000×$1.1)	$110,000
Contribution margin	$90,000

B. Unit contribution margin =$90,000/100,000 =$0.9

C) Contribution margin ratio=$90,000/$200,000=45%

D) Profit(loss)= Contribution margin- Fixed Expenses

= $90,000-($60,000)-($40,000)

=($10,000)

If sales increased by 20,000 units

Total units =100,000+20,000 =120,000 units

Sales(120,000×$2)	$240,000
Less: Variable cost(120,000×$1.1)	$132,000
Contribution margin	$108,000
Less: Fixed cost ($60,000+$40,000)	$100,000
Profit	$8,000

Increase in profit =$8,000-($10,000)

=$8,000+$10,000

=$18,000 overall increase ($8,000 in excess of $10,000 loss together)

_____×_____

All the best