Question

Barnes company reports the following for its product for its first year of operations. direct materials $ 35 per unit direct labor $ 25 per unit variable overhead $ 11 per unit fixed overhead $ 80,000 per year variable selling and administrative expenses $ 2 per unit fixed selling and administrative expenses $ 37,000 per year the company sells its product for $120 per unit. compute contribution margin using variable costing assuming the company (a) produces and sells 4,000 units and (b) produces 5,000 units and sells 4,000 units.

Answer 1

To compute the contribution margin using variable costing, subtract the variable costs from the sales revenue per unit. For (a) producing and selling 4,000 units, the total contribution margin is $188,000. For (b) producing 5,000 units and selling 4,000 units, the total contribution margin is also $188,000.

Step-by-step explanation:

To compute the contribution margin using variable costing, we need to subtract the variable costs from the sales revenue per unit. The variable costs in this case are the direct materials, direct labor, variable overhead, and variable selling and administrative expenses. Since fixed overhead and fixed selling and administrative expenses are not included in the variable costing, they do not affect the contribution margin.

For (a) producing and selling 4,000 units:

1. Total variable costs per unit = Direct materials + Direct labor + Variable overhead + Variable selling and administrative expenses = $35 + $25 + $11 + $2 = $73 per unit.
2. Contribution margin per unit = Selling price per unit - Total variable costs per unit = $120 - $73 = $47 per unit.
3. Total contribution margin = Contribution margin per unit x Number of units sold = $47 x 4,000 = $188,000.

For (b) producing 5,000 units and selling 4,000 units:

1. Total variable costs per unit = $73 per unit (same as in (a)).
2. Contribution margin per unit = $47 per unit (same as in (a)).
3. Total contribution margin = Contribution margin per unit x Number of units sold = $47 x 4,000 = $188,000.