Haaikon Company, which has only one product, has provided the following data concerning its most...

Question:

Haaikon Company, which has only one product, has provided the following data concerning its most recent month of operations.

Selling price $86
Unis in beginning inventory 0
Units produced 3,400
Units sold 3,300
Units in ending inventory 100
Variable cost per unit:
Direct materials $17
Direct labor $39
Variable manufacturing overhead $1
Variable selling and admnistrative $8
Fixed cost:
Fixed manufacturing overhead $40,800
Fixed selling and administratove $23,100

The total contribution margin for the month under the variable costing approach is:

a. $56,100

b. $28,500

c. $95,700

d. $69,300

Variable costing:

Under Variable costing, we consider only variable production costs in calculating product costs. All selling and administrative expenses are not included in calculating product costs, and are considered in period costs.

Answer and Explanation:

Data-

  • Number of units in beginning inventory = 0
  • Number of units produced = 3,400
  • Number of units sold = 3,300

Thus, Number of units in ending inventory = Number of units in beginning inventory + Number of units produced - Number of units sold

Putting data into the formula, we get

  • Number of units in ending inventory = 0 + 3,400 - 3,300 = 100

Data-

  • Direct materials cost per unit = $17
  • Direct labor cost per unit = $39
  • Variable manufacturing overhead cost per unit = $1

Formula -

Product cost per unit, under Variable costing is calculated as -

  • Product cost per unit = Direct material cost per unit + Direct Labor cost per unit + Variable manufacturing overhead per unit

Putting data into the formula, we get

  • Product cost per unit, under variable costing =
  • = $17 + $39 + $1
  • = $57 per unit

The total contribution margin for the month under the variable costing approach is calculated as -

Formula -

  • Total contribution margin = Sales price per unit * units sold - Product cost per unit * ( units produced - Ending Inventory )

Putting data into the formula, we get

  • Total contribution margin = $86 * 3,300 - $57 * (3,400 - 100 )
  • Total contribution margin = $283,800 - $57 * 3,300
  • Total contribution margin = $283,800 - $188,100
  • Total contribution margin = $95,700

Thus, option ( c ) is the correct answer


Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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