Question Vieyol Cerporation has collected the following info

Question Vieyol Cerporation has collected the following information afer its first year of saes. Sales were $1,600,000 on 100,000 unts, selling expenses $220,000 (40% var able and 60% ft ed), direct mate als SSM,000 dect laber tos o00, adi ist etve mpenses 278,00 aosm ble and ow variable and 30% fed). Top management has asked you to do a ap analysis so that K anmake plansfor the coming year. It has projected pat ina sales wil nerease by i0%netyear Compute (1) the contribution margin for the current year and the projected year, and (2) thefd sts for the cuent year(Assume that flwed costs will remain the same in the projected year) (1) Contribution margin for cureent year (2) Fxed Costs complete the

Solution

1

for the current year total expenses are bifurcated into variable and fixed expenses, based on the given information:

Contribution margin = sales - variable costs = 1,600,000 - 1,200,000 = $400,000

2

For the projected year, there is a 10% increase in sales, in that case, variable costs will also increase by 10%, . thereby,

sales = 1,600,000 + 1,600,000 * 10% = 1,760,000

Variable costs = 1,200,000 + 1,200,000*10% = $440,000

3

Fixed costs for the current year are 460,000.

Explanation for costs:

Direct materials and direct labor are variable costs in nature. Selling expenses of $220,000, 40% ($88,000) is variable, hence, balance, $132,000 is fixed.

Administration expenses of the given $278,000, 20% ($55,600) is variable, hence, balance is fixed.

Similarly manufacturing overhead of $352,000, 70% ($264,000) is variable and balance is fixed amount.

Hope the given explanation is sufficient. Please comment, if any doubt arises, your rating is appreciated.

Particulars	Units	Variable amount	Fixed amount	Total amount
Selling expenses		88,000	1,32,000	2,20,000
Direct materials		5,04,000		5,04,000
Direct labor		3,06,000		3,06,000
Administration		55,600	2,22,400	2,78,000
Manufacturing overhead		2,46,400	1,05,600	3,52,000
				-
Total expenses		12,00,000	4,60,000	16,60,000