Question

Barclay Corporation produced 250,000 watches that it sold for $32 each during year 2. The company determined that fixed manufacturing cost per unit was $16 per watch. The company reported a $2,400,000 gross margin on its year 2 financial statements. Determine
a. The variable cost per unit.
b. The total variable cost.
c. The total contribution margin.

Answer 1

Answer:

a. 6.4$

b. 1 600 000$

c. 6 400 000$

Explanation:

First, let's determine net sales. The total sales volume should be multiplied with product price.

Net sales = 250 000*32$ = 8 000 000$

Since we have the gross margin and net sales, we can determine the cost of goods sold (COGS).

COGS = Net Sales - Gross margin

COGS = 8 000 000 - 2 400 000 = 5 600 000$

Now that we have COGS, we can determine the total variable cost:

Total variable cost = COGS - Total fixed cost

Total variable cost = 5 600 000 - 250 000 * 16 = 1 600 000$

So, the variable cost per unit is:

Total variable cost/Number of units = 1 600 000 / 250 000 = 6.4$

Lastly, the total contribution margin is:

Total contribution margin = Sales Revenue - Total variable costs

Total contribution margin = 8 000 000 - 1 600 000 = 6 400 000$

This margin is useful when conducting a break-even analysis and determining the price of the product to be sold.