In: Accounting
1. Assume (1) total sales are $300,000, (2) the direct labor
cost of $40,000 is 25% of total conversion costs and 40% of total
prime costs, (3) the total selling and administrative expense is
$62,000, (4) the only variable selling and administrative expense
is sales commissions of 6% of sales, (5) all manufacturing overhead
costs are fixed costs, and (6) there are no beginning or ending
inventories.
What is the total contribution margin?
2. Assume that a manufacturing company incurred the following costs:
Direct labor | $ | 90,000 | |
Advertising | $ | 40,000 | |
Factory supervision | $ | 37,000 | |
Sales commissions | $ | 15,000 | |
Depreciation, office equipment | $ | 4,000 | |
Indirect materials | $ | 5,000 | |
Depreciation, factory building | $ | 20,000 | |
Administrative office salaries | $ | 1,000 | |
Utilities, factory | $ | 2,500 | |
Direct materials | $ | 107,000 | |
Insurance, factory | $ | 5,000 | |
Property taxes, factory | $ | 7,000 | |
3,
Assume the following information for a merchandising company:
Sales | $ | 490,000 | |
Variable selling expenses | $ | 25,000 | |
Cost of goods sold | $ | 350,000 | |
Fixed administrative expenses | $ | 50,000 | |
Fixed selling expenses | $ | 40,000 | |
Variable administrative expenses | $ | 5,000 | |
What is the company's contribution margin?
What is the total amount of manufacturing overhead?
Answer to Question 1:
Total sales = $300,000
Direct labor cost = 25% * Total conversion cost
$40,000 = 0.25 * Total conversion cost
Total conversion cost = $160,000
Total conversion cost = Direct labor cost + Manufacturing
overhead
$160,000 = $40,000 + Manufacturing overhead
Manufacturing overhead = $120,000
Direct labor cost = 40% * Total prime cost
$40,000 = 0.40 * Total prime cost
Total prime cost = $100,000
Total prime cost = Direct materials cost + Direct labor
cost
$100,000 = Direct materials cost + $40,000
Direct materials cost = $60,000
Variable selling and administrative expense = 6% * Total
sales
Variable selling and administrative expense = 6% * $300,000
Variable selling and administrative expense = $18,000
Total variable costs = Direct materials cost + Direct labor cost
+ Variable selling and administrative expense
Total variable costs = $60,000 + $40,000 + $18,000
Total variable costs = $118,000
Total contribution margin = Total sales - Total variable
costs
Total contribution margin = $300,000 - $118,000
Total contribution margin = $182,000