Iaci 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 $133.60 per unit. The best estimate of the total contribution margin when 4, 300 units are sold is:

Question

Iaci 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 $133.60 per unit.  The best estimate of the total contribution margin when 4, 300 units are sold is:

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
= ($479, 500 - $383, 600)÷ (5, 000 units - 4, 000 units)
= $95, 900 ÷ 1, 000 units
= $95.90 per unit
Variable selling and administrative cost = Change in cost ÷ Change in activity
= ($136, 000 - $124, 400)÷ (5, 000 units - 4, 000 units)
= $11, 600 ÷ 1, 000 units
= $11.60 per unit
Total variable cost per unit = Variable cost of sales + Variable selling and administrative cost
= $95.90 per unit + $11.60 per unit = $107.50 per unit
Contribution margin per unit = Selling price per unit - Total variable cost per unit
= $133.60 per unit - $107.50 per unit = $26.10 per unit
Total contribution margin = Contribution margin per unit × Total unit sales
= $26.10 per unit × 4, 300 units = $112, 230

Iaci Corporation Is a Wholesaler That Sells a Single Product