Financial information relating to the production and sale of Mountain Company\'s

Question

Financial information relating to the production and sale of Mountain Company's only product is shown below Selling price $22 Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit 400,000 350,000 50,000 Direct materials Direct labor Variable manufacturing $8 $6 overhead $3 Variable selling and iadministrative Fixed costs overhead administrative Fixed manufacturing $600,000 Fixed selling and $400,000 Total contribution margin under variable costing is

Explanation / Answer

Q1.

Total contribution is the excess of total sales over total variable cost.

Where, Total sales = Selling price × Units sold

                               = $22 × 350,000

                               = $7,700,000

Total variable cost = (Per unit cost of material + labor + manufacturing + selling) × Units sold

                              = (8 + 6 + 3 + 2) × 350,000

                              = $19 × 350,000

                              = $6,650,000

Total contribution = Total Sales – Total variable cost

                              = $7,700,000 - $6,650,000

                              = $1,050,000 (Answer)

Note: The amount of fixed costs should not be considered here.

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