Iacob Corporation is a wholesaler that sells a single product.Management has provided the following cost data for two levels of monthly sales volume.The company sells the product for $103.40 per unit. The best estimate of the total contribution margin when 5,300 units are sold is:

A) $56,710
B) $133,560
C) $41,340
D) $213,590

Question

Iacob Corporation is a wholesaler that sells a single product.Management has provided the following cost data for two levels of monthly sales volume.The company sells the product for $103.40 per unit.

The best estimate of the total contribution margin when 5,300 units are sold is:

A) $56,710
B) $133,560
C) $41,340
D) $213,590

Riley Decker · Accepted Answer

Final Answer : B, Explanation :  To find the contribution margin, we need to first calculate the total variable cost at each sales level and then subtract it from the total revenue.When 4,300 units are sold:Total revenue = $103.40 x 4,300 = $444,620Variable cost per unit = ($40.80 + $24.50 + $16.70 + $10.90 + $7.60) = $100.50Total variable cost = $100.50 x 4,300 = $431,850Contribution margin = $444,620 - $431,850 = $12,770When 5,300 units are sold:Total revenue = $103.40 x 5,300 = $548,620Variable cost per unit = ($40.80 + $24.50 + $16.70 + $10.90 + $7.60) = $100.50Total variable cost = $100.50 x 5,300 = $533,650Contribution margin = $548,620 - $533,650 = $14,970Therefore, the best estimate of the total contribution margin when 5,300 units are sold is $14,970. Used the high-low method to estimate variable components of the costs:Variable cost of sales = Change in cost ÷ Change in activity= ($378,600 - $315,500)÷ (6,000 units - 5,000 units)= $63,100 ÷ 1,000 units= $63.10 per unitVariable selling and administrative cost = Change in cost ÷ Change in activity= ($177,600 - $162,500)÷ (6,000 units - 5,000 units)= $15,100 ÷ 1,000 units= $15.10 per unitTotal variable cost per unit = Variable cost of sales + Variable selling and administrative cost= $63.10 per unit + $15.10 per unit = $78.20 per unitContribution margin per unit = Selling price per unit - Total variable cost per unit= $103.40 per unit - $78.20 per unit = $25.20 per unitTotal contribution margin = Contribution margin per unit × Total unit sales= $25.20 per unit × 5,300 units = $133,560

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