Lorge Corporation has collected the following information after its first year o
ID: 2425677 • Letter: L
Question
Lorge Corporation has collected the following information after its first year of sales. Sales were $1,575,000 on 105,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $606,100; direct labor $250,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $357,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.)
Explanation / Answer
Answer 1. Calculation of Contribution Margin Particulars Current Year Projected Year Sales in Units 105000 115500 (105000 Units X 110%) SP per unit 15 15 A. Sales in $ 1,575,000 1,732,500 Less: Variable Costs Direct materials 606,100 666,710 (606100 X 110%) Direct Labor 250,000 275,000 (250000 X 110%) Manufacturing Overhead 249,900 274,890 ($357000 X 70%) (249900 X 110%) Administrative Expenses 54,000 59,400 ($270000 X 20%) (54000 X 110%) Selling Expenses 100,000 110,000 ($250000 X 40%) (100000 X 110%) B. Total Variable Expenses 1,260,000 1,386,000 Total Contribution Margin (A-B) 315,000 346,500 Contribution Per Unit 3 3 Contribtion Margin Ratio ( Contribution / Sales) 20% 20% Answer 2. Calculation of Total Fixed Costs Particulars Current Year Projected Year Manufacturing Overhead 107,100.00 107,100.00 ($357000 X 30%) Fixed Administrative Expenses 216,000.00 216,000.00 ($270000 X 80%) Fixed Selling Expenses 150,000.00 150,000.00 ($250000 X 60%) Total Fixed Costs 473,100.00 473,100.00
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