Question

Computing variable costing contribution margin

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the contribution margin using variable costing when Adamson:

1. Produces and sells 2,000 units.
2. Produces 2,500 units and sells 2,000 units
3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

Short answer

Answer

1. Contribution margin =$140,000
2. Contribution margin =$140,000
3. Contribution margin =$140,000

Step-by-step solution

Calculation of unit product cost using variable costing

Units Produced	2,000 Units	2,500 Units	5,000 Units
Direct material	$41	$41	$41
Direct labor	$57	$57	$57
Variable manufacturing overhead	$7	$7	$7
Total unit product cost	$105	$105	$105

Calculation of contribution margin (a, b, c) :

Particulars	Produce and sell 2,000 units	Produce 2,500 and sell 2,000 units	Produce 5,000 and sell 2,000 units
Net sales revenue	2,000*$175 =$350,000	2,000*$175 =$350,000	2,000*$175 =$350,000
Less: Variable costs	2,000*$105 =$210,000	2,000*$105 =$210,000	2,000*$105 =$210,000
Contribution margin	$140,000	$140,000	$140,000