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

Quizplus · Accepted Answer

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 unit
Variable 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 unit
Total variable cost per unit = Variable cost of sales + Variable selling and administrative cost
= $63.10 per unit + $15.10 per unit = $78.20 per unit
Contribution margin per unit = Selling price per unit - Total variable cost per unit
= $103.40 per unit - $78.20 per unit = $25.20 per unit
Total contribution margin = Contribution margin per unit × Total unit sales
= $25.20 per unit × 5,300 units = $133,560

Iacob Corporation Is a Wholesaler That Sells a Single Product