Question

In: Accounting

1. Assume (1) total sales are $300,000, (2) the direct labor cost of $40,000 is 25%...

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?

Solutions

Expert Solution

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


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