Question

Use the information below to answer questions 1-3. Call Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $140.50 per unit. Sales volume (units).............................................. 6,000 7,000 Cost of sales.......................................................... $497,400 $580,300 Selling, general, and administrative costs............. $273,600 $294,700 3. The best estimate of the total contribution margin when 6,300 units are sold is:

Answer 1

Answer:

Contribution margin for 6,300 units = $229,950

Explanation:

Since change in activity level is given,

We can compute the fixed and variable cost per unit

Change in cost of sales = $580,300 - $497,400 = $82,900

Change in activity = 7,000 - 6,000 = 1,000 units

Thus, variable cost of sales per unit = $82,900/1,000 = $82.90

Therefore, fixed cost = $580,300 - ($82.90 $\times$ 7,000) = $580,300 - $580,300

= $0

Thus, there is no fixed cost in this, it is complete variable.

Moving to selling and administration expenses

Change in cost = $294,700 - $273,600 = $21,100

Change in activity level = 7,000 - 6,000 = 1,000 units

Cost per unit variable = $21,100/1,000 = $21.10

Fixed Cost = $273,600 - ($21.10 $\times$ 6,000) = $273,600 - $126,600. = $147,000

Therefore, variable cost per unit = $82.90 + $21.10 = $104

Selling price per unit = $140.50

Contribution per unit = $140,50 - $104 = $36.50

Contribution margin for 6,300 units = $36.50 $\times$ 6,300 = $229,950