Estrada Corporation produced 300,000 watches that it…

Question:

Estrada Corporation produced 300,000 watches that it sold for $35 each. The company determined that fixed manufacturing cost per unit was $14 per watch. The company reported a $2,700,000 gross margin on its income statement.

Determine the variable cost per unit, the total variable cost, the total contribution margin.

Answer:

Total sales = 300000 x $35 = 10500000
if gross margin = 2700000 then total cost of goods = 10500000-2700000=7800000
Total cost of goods = fixed cost + variable cost
fixed cost = 300000 x $14 = 4200000
total cost of goods – total fixed cost = total variable cost
7800000 – 4200000 = 3600000
variable cost per unit = total variable cost / number of units produced
3600000 /300000 = $12
total contribution margin = total sales less total variable costs
10500000 – 3600000 = 6900000

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