Question

Kator Co. is a manufacturer of industrial components. One of its products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit: Selling price $150 Direct materials $ 20 Direct labor 15 Variable manufacturing overhead 12 Fixed manufacturing overhead 30 Shipping and handling 3 Fixed selling and administrative 10 Total costs $ 90 Question During the next year, KB-96 sales are expected to be 10,000 units. All of the costs will remain the same except that fixed manufacturing overhead will increase by 20% and direct materials will increase by 10%. The selling price per unit for next year will be $160. Based on this data, the contribution margin from KB-96 for next year will be A. $1,080,000 B. $750,000 C. $1,110,000 D. $620,000

Answer 1

A. $1,080,000

Step-by-step explanation:

Calculation for the contribution margin from KB-96 for next year

First step is to calculate for the increase in direct materials

Increase in direct materials = (1.1 × $20)

Increase in direct materials =$22 per unit

Second is to calculate the variable costs

Total unit variable costs = ($22 + $15 + $12 + $3

Total unit variable costs = $52

Last step is the Computation of contribution margin using this formula

Contribution margin =Sales - Variable costs

Let plug in the formula

Contribution margin =10,000 units ($160 unit Selling price -$52)]

Contribution margin =10,000 units *$108

Contribution margin=$1,080,000

Therefore the contribution margin from KB-96 for next year will be $1,080,000