Chilton, Inc. sold 12,100 units last year for $21 each. Variable costs per unit

Question

Chilton, Inc. sold 12,100 units last year for $21 each. Variable costs per unit were $3.00 for direct materials, $1.60 for direct labor, and $3.20 for variable overhead. Fixed costs were $61,500 in manufacturing overhead and $40,600 in nonmanufacturing costs.

If sales increase by 2,060 units, by how much will profits increase? (Round your intermediate calculation to 2 decimal places and final answer to the nearest dollar amount.)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Total Contribution = Sales*(Selling Price - Variable Cost) = 12100*(21 - 3 - 1.60 - 3.20) = $159720

Part B:

Contribution Per Unit = Selling Price Per Unit - Variable Cost Per Unit = 21 - 3 - 1.60 - 3.20 = $13.20

Part C:

Contribution Ratio = Contribution Per Unit/Selling Price Per Unit*100 = 13.20/21*100 = 62.86%

Part D:

Increase in Profits = Increase in Units*Selling Price Per Unit = 2060*13.20 = $27192

Thanks.

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