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Marginal costing and Contribution

Forums › FIA Forums › MA1 Management Information Forums › Marginal costing and Contribution

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by Ken Garrett.
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  • Author
    Posts
  • August 21, 2016 at 8:31 pm #334415
    vashti123
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    A company is preparing it cost budgets for the forthcoming financial year. Thr company produces a single product,which it is expecting to sell at $150 per unit. Based on annual sales and output of 2000 units, estimated costs are:
    $’000
    Direct material 41
    Direct wages 38
    Variable production overhead 37
    Fixed production overhead 40
    Variable selling overhead 10
    Fixed administration overhead 50
    Total 216
    If marginal costing is applied, what is the total contribution?
    A. $156000
    B. $174000
    C. $144000
    D. $84000

    My anwer:
    Direct marerial $41
    Direct wages $38
    Variable production Overhead $37
    Variable selling overhead $10

    Cost per unit= $126
    2000 units x $126 = $252,000

    Sales = 2000 units $150 = $300,000

    Contribution = $300,000 – $252,000
    =$48,000

    Can somebody plz explain where i went wrong. Thanks

    August 25, 2016 at 1:36 pm #335144
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10591
    • ☆☆☆☆☆

    The amounts given are in 000 so are presumable not per unit.

    Variable costs = 126,000
    Revenue = 300,000
    Contribution = 174,000

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