Viejol Corporation has collected the following information after its first year

Question

Viejol Corporation has collected the following information after its first year of sales. Sales were $1,250,000 on 125,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $492,000, direct labor $27,900, administrative expenses $272,000 (20% variable and 80% fixed), and manufacturing overhead $376,000 (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.)

Contribution margin for current year $ ____
Contribution margin for projected year $ ____
Fixed Costs $____

Explanation / Answer

Current year Projected year Sales 1250000 1375000 Variable expenses: Direct materials 492000 541200 Direct labor 27900 30690 Selling expenses 100000 110000 Administrative expenses 54400 59840 Manufacturing overhead 263200 289520 Total Variable expenses 937500 1031250 Contribution margin 312500 343750 2 Fixed Costs = (250000*60%)+(272000*80%)+(376000*30%)= 480400

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