Question

Diego Company manufactures one product that is sold for $78 per unit. The following information pertains to the company’s first year of operations in which it produced 60,000 units and sold 55,000 units. Variable costs per unit: Manufacturing: Direct materials $ 28 Direct labour $ 12 Variable manufacturing overhead $ 2 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 1,260,000 Fixed selling and administrative expenses $ 654,000 3. What is the company’s total contribution margin under variable costing?

Answer 1

The company’s total contribution margin under variable costing is $1,815,000.

Explanation:

Contribution margin is the difference between sales and variable Expense.

It is given that,

Units sold = 55,000 units

Selling price = $78 per unit

Variable expenses:
Direct materials = $28 per unit
Direct labour = $12 per unit
Variable manufacturing overhead = $2 per unit
Variable selling and administrative = $3 per unit

Total variable expenses per unit = $28 + $12 + $2 + $3 = $45 per unit

Contribution margin per unit = Selling price per unit - Total variable expenses per unit = $78 - $45 = $33 per unit

Total Contribution margin = Units sold × Contribution margin per unit = 55,000 × $33 = $1,815,000