Question

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs. $18,000; and fixed costs, $16,000. The variable costs expected if the company produces and sells 16,000 units is:

48,000
64,000
40,000
24,000
18,000

Answer 1

The answer is C. $40,000

Explanation:

Contribution margin = Sales - variable cost

Also we have:

Contribution margin per unit = Selling price per unit - variable cost per unit

we have:

The selling price of one unit is calculated as follows:

Total amount gotten from sales divided by the total units sold, viz:

= $48,000 ÷ 12,000 units

= $4

The variable cost per unit is calculated as follows:

Total variable cost incurred divided by the total amount of units produced, viz:

= $18,000 ÷ 12,000 units

= $1.5

Therefore, the contribution margin per unit is calculated as follows:

= $4 - $1.5

= $2.5

The contribution margin for 16,000 units is therefore calculated as follows:

= 16,000 units × $2.5

= $40,000