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:

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:

Quizplus · Accepted Answer

To find the contribution margin, we need to first calculate the total variable cost at each sales level and then subtract it from the total revenue.

When 4,300 units are sold:
Total revenue = $103.40 x 4,300 = $444,620
Variable cost per unit = ($40.80 + $24.50 + $16.70 + $10.90 + $7.60) = $100.50
Total variable cost = $100.50 x 4,300 = $431,850
Contribution margin = $444,620 - $431,850 = $12,770

When 5,300 units are sold:
Total revenue = $103.40 x 5,300 = $548,620
Variable cost per unit = ($40.80 + $24.50 + $16.70 + $10.90 + $7.60) = $100.50
Total variable cost = $100.50 x 5,300 = $533,650
Contribution margin = $548,620 - $533,650 = $14,970

Therefore, the best estimate of the total contribution margin when 5,300 units are sold is $14,970. 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