Question

In: Accounting

Cost Terminology; Contribution Format Income Statement

Miller Company’s total sales are $120,000. The company’s direct labor cost is $15,000, which represents 30% of its total conversion cost and 40% of its total prime cost. Its total selling and administrative expense is $18,000 and its only variable selling and administrative expense is a sales commission of 5% of sales. The company maintains no beginning or ending inventories and its manufacturing overhead costs are entirely fixed costs

Required:

1. What is the total manufacturing overhead cost?

2. What is the total direct materials cost?

3. What is the total manufacturing cost?

4. What is the total variable selling and administrative cost?

5. What is the total variable cost?

6. What is the total fixed cost?

7. What is the total contribution margin?

Solutions

Expert Solution

1. The total manufacturing overhead cost is computed as follows:

Direct labor cost (a)........................................... $15,000

Direct labor as a percentage of total conversion costs (b)......................................................... 30%

Total conversion cost (a) ÷ (b)........................... $50,000

Total conversion cost (a) ................................... $50,000

Direct labor cost (b)........................................... $15,000

Total manufacturing overhead cost (a) ‒ (b) ....... $35,000

 

2. The total direct materials cost is computed as follows:

Direct labor cost (a)........................................... $15,000

Direct labor as a percentage of total prime costs (b)................................................................. 40%

Total prime cost (a) ÷ (b) .................................. $37,500

Total prime cost (a)........................................... $37,500

Direct labor cost (b)........................................... $15,000

Total direct materials cost (a) ‒ (b)..................... $22,500

 

3. The total amount of manufacturing cost is computed as follows:

Direct materials cost.......................................... $22,500

Direct labor cost................................................ 15,000

Manufacturing overhead cost ............................. 35,000

Total manufacturing cost.................................... $72,500

 

4. The total variable selling and administrative cost is computed as follows:

Total sales (a)................................................... $120,000

Sales commission percentage (b) ....................... 5%

Total variable selling and administrative cost (a) × (b).............................................................. $6,000 

 

5. The total variable cost is computed as follows:

Direct materials cost.......................................... $22,500

Direct labor cost................................................ 15,000

Sales commissions............................................. 6,000

Total variable cost ............................................. $43,500

 

6. The total fixed cost is computed as follows:

Total selling and administrative expenses (a)............................................ $18,000

Sales commissions (b) .............................. $6,000

Total fixed selling and administrative expense (a) ‒ (b).............................. $12,000

Total fixed manufacturing overhead........... 35,000

Total fixed cost......................................... $47,000

 

7. The total contribution margin is calculated as follows:

Sales (a)........................................................... $120,000

Variable costs (b) .............................................. $43,500

Contribution margin (a) ‒ (b)............................. $76,500 

1. Total manufacturing overhead cost  ....... $35,000

 

2. Total direct materials cost .................... $22,500

 

3. Total manufacturing cost.................................... $72,500

 

4. Total variable selling and administrative cost................................... $6,000 

 

5. Total variable cost ............................................. $43,500

 

6. Total fixed cost......................................... $47,000

 

7. Contribution margin............................. $76,500 

devender singh answered 2 years ago
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