In its first year of operations,a company has sales of $150,000,ending finished goods inventory of $10,000,variable manufacturing costs of $50,000,and fixed manufacturing costs of $30,000 for the year.The company pays 10% commission to its sales force and has fixed selling and administrative expenses of $25,000 annually.The company has no other variable expenses.Assuming the company uses direct costing,the contribution margin for the year is
A) $110,000.
B) $95,000.
C) $40,000.
D) $13,000.

Question

Quizplus · Accepted Answer

Contribution margin = Sales - Variable Costs
Sales = $150,000 - Ending Finished Goods Inventory = $150,000 - $10,000 = $140,000
Variable Costs = Variable Manufacturing Costs + Commission = $50,000 + ($150,000 x 10%) = $65,000

Contribution margin = $140,000 - $65,000 = $75,000
Less: Fixed Costs = Fixed Manufacturing Costs + Fixed Selling and Administrative Expenses = $30,000 + $25,000 = $55,000

Net Income = Contribution margin - Fixed Costs = $75,000 - $55,000 = $20,000

Therefore, the contribution margin for the year is $95,000 ($75,000 + $20,000). The correct answer is B.

In Its First Year of Operations,a Company Has Sales of $150,000,ending