Razor Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is Fluoro2211. The selling price and cost per unit data for 9,000 units of Fluoro2211 are as follows.
$$\begin{array} { l r }
& \text { Per Unit Data }\
\text { Selling Price } & \$ 150 \
\text { Direct Materials } &20 \
\text { Direct Labor } &15 \
\text { Variable Manufacturing Overhead } & 12\
\text { Fixed Manufacturing Overhead } &30 \
\text { Variable Selling } & 3 \
\text { Fixed Selling and Admnistrative } &10\
\text { Total Costs } & 90\
\text { Operating Margin } & \$60\

\end{array}$$
During the next year, sales of Fluoro2211 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase by 20%, and direct materials, which will increase by 10%. The selling price per unit for next year will be $160. Based on these data, Razor Inc.'s total contribution margin for next year will be: (CMA adapted)
A) $882,000.
B) $980,000.
C) $972,000.
D) $1,080,000.

Question

Razor Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is Fluoro2211. The selling price and cost per unit data for 9,000 units of Fluoro2211 are as follows. 
$$\begin{array} { l r } 
& \text { Per Unit Data }\
\text { Selling Price } & \$ 150 \
\text { Direct Materials } &20  \
\text { Direct Labor } &15 \
\text { Variable Manufacturing Overhead } &  12\
\text { Fixed Manufacturing Overhead } &30   \
\text { Variable Selling } & 3  \
\text { Fixed Selling and Admnistrative } &10\
\text { Total Costs } &   90\
\text { Operating Margin } & \$60\

\end{array}$$
During the next year, sales of Fluoro2211 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase by 20%, and direct materials, which will increase by 10%. The selling price per unit for next year will be $160. Based on these data, Razor Inc.'s total contribution margin for next year will be: (CMA adapted)
A) $882,000.
B) $980,000.
C) $972,000.
D) $1,080,000.

Quizplus · Accepted Answer

The contribution margin per unit is calculated as Selling Price - Variable Costs. For next year, the selling price is $160, and the variable costs are Direct Materials ($22), Direct Labor ($15), Variable Manufacturing Overhead ($12), and Variable Selling ($3), totaling $52. Thus, the contribution margin per unit is $160 - $52 = $108. For 10,000 units, the total contribution margin is 10,000 * $108 = $1,080,000.

Razor Inc Manufactures Industrial Components During the Next Year, Sales of Fluoro2211 Are Expected to as a Subcomponent