Question

Phillips Company manufactures air-conditioning units for commercial buildings and has noticed considerable variation in shipping expenses from month to month as per the data below:

	Units	Total Shipping
Month	Shipped	Expense
January	4	$	2,000
February	4	$	2,900
March	5	$	2,350
April	2	$	1,260
May	3	$	2,040
June	6	$	2,700
July	8	$	3,840

8. If the air conditioners have an average sales price of $6,100, variable direct manufacturing costs are $3,050 per unit, variable manufacturing overhead costs are $1,220 per unit, and variable selling and administration costs (excluding shipping) are $240 per unit, what is the contribution margin per unit?

Answer 1

	Units shipped	Total shipping expense
High level of activity [ July ]	8	3840
(-) Low level of activity [ April ]	2	1260
Difference	6	2580

Variable shipping cost per unit = Difference in total shipping expense / Difference in units shipped = 2580 / 6 =

430

per unit

	Per unit
variable direct manufacturing costs	3050
(+) variable manufacturing overhead costs	1220
(+) variable selling and administration costs (excluding shipping)	240
(+) Variable shipping cost	430
Total variable cost per unit	4940

Selling price per unit	6100
(-) Total variable cost per unit	4940
contribution margin per unit	1160