Question

Jason, Inc. sold 90,000 units last year for $2.50 each. Variable costs per unit were $0.30 for direct materials, $0.50 for direct labor, and $0.30 for variable overhead. Fixed costs were $60,000 in manufacturing overhead and $40,000 in nonmanufacturing costs.

a. What is the total contribution margin?

b. What is the unit contribution margin?

c. What is the contribution margin ratio?

d. If sales increase by 15,000 units, by how much will profits increase?

Answer 1

a.	Total Contribution margin	=	$       1,26,000
b.	Unit Contribution margin	=	$               1.40
c.	Contribution margin ratio	=	56%
d.	If sales increase by 15000 profit will increase by	=	$           21,000
		Per unit	90000 units	105000 units	Difference
		(i)	(i) X 90000 units	(i) X 105000 units
	Selling price	$       2.50	$       2,25,000	$       2,62,500	$ 37,500
Less:	Variable expenses:
(i)	Direct material cost	$       0.30	$           27,000	$           31,500	$    4,500
	Direct labor cost	$       0.50	$           45,000	$           52,500	$    7,500
	Variable overhead	$       0.30	$           27,000	$           31,500	$    4,500
	Total Variable expenses	$       1.10	$           99,000	$       1,15,500	$ 16,500
(ii)	Contribution margin	$       1.40	$       1,26,000	$       1,47,000	$ 21,000
Less:	Fixed expenses:
	Fixed manufacturing overhead		$           60,000	$           60,000	$           -
	Fixed non - manufacturing overhead		$           40,000	$           40,000	$           -
	Total Fixed expenses		$       1,00,000	$       1,00,000	$           -
	Net Income		$           26,000	$           47,000	$ 21,000
	Contribution margin ratio	=	Contribution margin / Sales
		=	$1.40 / $2.50
		=	56%