Question

Violins Galore produces? student-grade violins for beginning violin students. The company produced 2,200 violins in its first month of operations. At? month-end, 550 finished violins remained unsold. There was no inventory in work in process. Violins were sold for $117.50 each. Total costs from the month are as? follows:

Compute the following amounts that would be shown on these income? statements:

1. Gross Profit

2. Contribution Margin

3. Total expenses shown below the gross profit line

4. Total expenses shown below the contribution margin line

Direct materials used	$94,800
Direct labor	$60,000
Variable manufacturing overhead	$30,000
Fixed manufacturing overhead	$41,800
Variable selling and administrative expenses	$7,000
Fixed selling and administrative expenses	$13,700

Answer 1

1.GROSS PROFIT= SALES - COST OF GOODS SOLD

SALES = SALES UNIT * SALES PRICE

SALES UNIT = TOTAL PRODUCTION - CLOSING STOCK  

SALES UNIT= 2200-550= 1650 UNITS

SALES= 1650 UNITS * $117.50= $193875

COST OF GOODS SOLD= DIRECT MATERIALS + DIRECT LABOUR + VARIABLE MANUFACTURIING OVERHEAD + FIXED MANUFACTURING OVERHEAD - VALUE OF CLOSING STOCK

VALUE OF CLOSING STOCK = (TOTAL MANUFACTURING COST * UNSOLD UNITS )/TOTAL UNITS PRODUCED

TOTAL MANUFACTURING COST = DIRECT MATERIALS + DIRECT LABOUR + VARIABLE MANUFACTURIING OVERHEAD + FIXED MANUFACTURING OVERHEAD

$94800+$60000+$30000+41800=$226600

CLOSING STOCK = ($226600*550)/2200=$56650

COST OF GOODS SOLD = $226600-$56650=$169950

GROSS PROFIT = $193875-$169950= $23925

2.) CONTRIBUTION MARGIN

SALES - TOTAL VARIABLE COST OF PRODUCT SOLD

SALES= $193875

TOTAL VARIABLE COST OF PRODUCT SOLD = TOTAL VARIABLE COST OF GOODS PRODUCED - CLOSING STOCK

CLOSING STOCK = (TOTAL VARIABLE MANUFACTURING COST*UNSOLD UNITS)TOTAL UNITS PRODUCED

TOTAL VARIABLE MANUFACTURING COST= DIRECT MATERIALS + DIRECT LABOUR + VARIABLE MANUFACTURIING OVERHEAD

$94800+$60000+$30000=$184800

CLOSING STOCK = ($184800*550)/2200=$46200

TOTAL VARIABLE COST = TOTAL VARIABLE MANUFACTURING COST +TOTAL VARIABLE SELLING AND ADMINISTRATION EXPENSES- CLOSING STOCK

$184800+$7000-$46200=$145600

CONTRIBUTION= $193875-$145600= $48275

3.) TOTAL EXPENSES SHOWN BELOW THE GROSS PROFIT LINE

TOTAL VARIABLE SELLING AND ADMINISTRATION EXPENSES+TOTAL FIXED SELLING AND ADMINISTRATION EXPENSES

$7000+$13700=$20700

4.)TOTAL EXPENSES SHOWN BELOW THE CONTRIBUTION LINE

TOTAL FIXED MANUFACTURING EXPENSES + TOTAL FIXED SELLING AND ADMINISTRATION EXPENSES

$41800+$13700= $55500