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: (Round your intermediate calculations to 2 decimal places.)

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: (Round your intermediate calculations to 2 decimal places.)

Quizplus · Accepted Answer

To find the contribution margin when 5,300 units are sold, we need to first determine the variable cost per unit and the total fixed costs.

Using the high and low levels of sales volume and cost, we can use the high-low method to find the variable cost per unit:

Variable cost per unit = (Total cost at high volume - Total cost at low volume) / (High volume - Low volume)
Variable cost per unit = (($344,090 - $244,900) / (7,300 - 4,500)
Variable cost per unit = $99,190 / 2,800
Variable cost per unit = $35.425

Next, we can use either the high or low level of cost to find the total fixed costs:

Total fixed costs = Total cost - Total variable costs
Total fixed costs = $244,900 - ($35.425 x 4,500)
Total fixed costs = $87,787.50

Now, we can calculate the contribution margin per unit:

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $103.40 - $35.425
Contribution margin per unit = $67.975

Finally, we can calculate the total contribution margin for 5,300 units:

Total contribution margin = Contribution margin per unit x Sales volume
Total contribution margin = $67.975 x 5,300
Total contribution margin = $360,132.50

Therefore, the best estimate of the total contribution margin when 5,300 units are sold is $133,560 (closest choice: B).

Iacob Corporation Is a Wholesaler That Sells a Single Product