Estrada Corporation produced 211,000 watches that it sold for $17 each during 20

Question

Estrada Corporation produced 211,000 watches that it sold for $17 each during 2015. The company determined that fixed manufacturing cost per unit was $7 per watch. The company reported a $844,000 gross margin on its 2015 financial statements.

Determine the variable cost per unit, the total variable cost, and the total contribution margin.

Estrada Corporation produced 211,000 watches that it sold for $17 each during 2015. The company determined that fixed manufacturing cost per unit was $7 per watch. The company reported a $844,000 gross margin on its 2015 financial statements.

Explanation / Answer

Total variable cost = Total sales - Total Fixed cost - Total gross margin

= ( 211000*17) - ( 211000*7) - 844000

= 3587000-1477000-844000

= 1266000

Variable cost per unit = 1266000/211000 i.e 6 per unit

Contribution per unit = Selling price per unit - Variable cost per unit

= 17 - 6 i.e 11 per unit

Total contribution margin = 211000*11 i.e 2321000

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