Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
Question
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Chapter 2, Problem 15E
To determine

To Prepare:

Contribution Income statement for the quarter ended 31 March

Expert Solution
Check Mark

Answer to Problem 15E

Solution:

    Particulars Per unit Total
    Sales 750 150000
    Direct Materials 500 $100,000
    Variable Selling Expense 50 $10,000
    Variable Administrative Expense 10 $2,000
    Contribution 190 $38,000
    Fixed Selling Expense $20,000
    Fixed Administrative Expense $20,000
    Profit / (Loss) ($2,000)

Explanation of Solution

  • Given:

Sales = $150,000

Sales Price per unit = $750

Variable Selling Expense per unit = $50

Variable Administrative Expense per unit = $10 Purchases = $100,000

  • Formula Used:
  • Units produced =  Total SalesSales Price per unit

      Variable Selling Expense = Variable Selling Expense per unit × Units Produced

    Variable Administrative Expense = Variable Administrative Expense per unit × Units Produced

  Direct Materials per unit =  PurchasesUnits Produced 

  Contribution = Sales  Direct Materials  Variable Costs

Calculations:

    Units produced =  $150,000$750  = 200 Units
    Variable Selling Expense = 200 @$50 = $10,000

    Variable Administrative Expense = 200 @$10 = $2,000

    Direct Materials = $100,000 / 200 = $500 per unit

    Contribution = $150,000 - $100,000 - $10,000 - $2,000 = $38,000

  • Variable costs are costs that are impacted by the volume of goods produced and have a direct correlation with the number of goods produced.
  • Fixed costs are costs that have to be incurred irrespective of the volume of goods produced.
  • The costs considered for calculation of contribution are variable costs.
  • Contribution is the difference between the Sales and Variable Costs including cost of Materials
Conclusion

Hence the contribution format income statement has been prepared for the quarter ended 31 March.

3)

Contribution and Fixed and Variable Costs in Manufacturing

  • Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.
  • Examples are costs of direct material and direct labor.
  • Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.
  • Examples are costs of factory rent, depreciation on plant and equipment
  • Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.
  • Examples are Direct materials and Manufacturing Overhead
  • Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.
To determine

Contribution Margin Per unit

Expert Solution
Check Mark

Answer to Problem 15E

Solution:

The contribution Margin per unit is $190

Explanation of Solution

Sales = $150,000

Sales Price per unit = $750

Variable Selling Expense per unit = $50

Variable Administrative Expense per unit = $10 Purchases = $100,000

Formula Used:

  Units produced =  Total SalesSales Price per unit

  Variable Selling Expense = Variable Selling Expense per unit × Units Produced

  Variable Administrative Expense = Variable Administrative Expense per unit × Units Produced

  Direct Materials per unit =  PurchasesUnits Produced 

  Contribution = Sales  Direct Materials  Variable Costs

  Contribution per unit =  ContributionUnits Produced 

Calculations:

  Units produced =  $150,000$750  = 200 Units

    Variable Selling Expense = 200 @ $50 = $10,000

    Variable Administrative Expense = 200 @$10 = $2,000

    Direct Materials = $100,000 / 200 = $500 per unit

    Contribution = $150,000 - $100,000 - $10,000 - $2,000 = $38,000

    Particulars Per unit Total
    Sales 750 150000
    Direct Materials 500 $100,000
    Variable Selling Expense 50 $10,000
    Variable Administrative Expense 10 $2,000
    Contribution 190 $38,000
  • The costs considered for calculation of contribution are variable costs.
  • Contribution is the difference between the Sales and Variable Costs including cost of Materials
  • Contribution per unit is the total Contribution divided by the Units Produced.
Conclusion

Hence the Contribution margin per unit is calculated.

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Chapter 2 Solutions

Managerial Accounting

Ch. 2 - Define the following: (a) direct materials, (b)...Ch. 2 - Explain the difference between a product cost and...Ch. 2 - Distinguish between (a) a variable cost, (b) a...Ch. 2 - Prob. 5QCh. 2 - Define the following terms: (a) cost behavior and...Ch. 2 - What is meant by an activity base when dealing...Ch. 2 - Managers often assume a strictly linear...Ch. 2 - Distinguish between discretionary fixed costs and...Ch. 2 - Does the concept of the relevant range apply to...Ch. 2 - What is the major disadvantage of the high-low...Ch. 2 - Prob. 12QCh. 2 - Prob. 13QCh. 2 - What is the difference between a traditional...Ch. 2 - Prob. 15QCh. 2 - Prob. 16QCh. 2 - Prob. 17QCh. 2 - Prob. 1AECh. 2 - Prob. 2AECh. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - Prob. 1F15Ch. 2 - L012, L013, L014, L015, L016 Martinez Company’s...Ch. 2 - L01–1, L01–2, L01–3, L01–4, L01–5, L01–6 Martinez...Ch. 2 - L01–1, L01–2, L01–3, L01–4, L01–5, L01–6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - EXERCISE 1—1 Identifying Direct and Indirect Costs...Ch. 2 - EXERCISE 1-2 Classifying Manufacturing Costs LO1-2...Ch. 2 - EXERCISE 1-3 Classifying Costs as Product or...Ch. 2 - EXERCISE 14 Fixed and Variable Cost Behavior LO14...Ch. 2 - Prob. 5ECh. 2 - EXERCISE 1—6 Traditional and Contribution Format...Ch. 2 - Prob. 7ECh. 2 - Prob. 8ECh. 2 - Prob. 9ECh. 2 - Prob. 10ECh. 2 - Prob. 11ECh. 2 - EXERCISE 1-12 Product and Period Cost Flows LO1–3...Ch. 2 - Prob. 13ECh. 2 - EXERCISE 2-14 High-Low Method: Predicting Cost...Ch. 2 - Prob. 15ECh. 2 - Prob. 16PCh. 2 - Prob. 17PCh. 2 - PROBLEM 1-18 Direct and Indirect Costs; variable...Ch. 2 - Prob. 19PCh. 2 - PROBLEM 2-20 High-Low Method; Predicting Cost...Ch. 2 - PROBLEM 2-21 Cost Classification [L02-1, L02-3,...Ch. 2 - Prob. 22PCh. 2 - Prob. 23PCh. 2 - Prob. 24PCh. 2 - Prob. 25PCh. 2 - Prob. 26CCh. 2 - Prob. 27C
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