Chapter 21, Problem 27E

To determine

Introduction:

Contribution margin is the excess of sales over variable cost. In other words, sales minus variable cost equals contribution margin.

The missing amounts denoted by letters a to n

Answer to Problem 27E

Solution:

The calculation of missing items is shown in the explanation section.

Explanation of Solution

Particulars	Company A		Company B
Number of Units sold	3200 (Note a)		1975
	Total	Per unit	Total	Per unit
Sales	$208000	$65	$82950 (Note h)	$42 (Note i)
Variable Costs	150400	$47 (Note b)	$39500	$20 (Note j)
Contribution margin	$57600 (Note c)	$18 (Note (d)	43450	$22 (Note k)
Fixed costs	$11200 (Note e)	$3.50 (Note f)	19750	$10 (Note l)
Net income	$46400	$14.50 (Note g)	$23700(Note m)	$12 (Note n)

Working Notes:

1. Calculation of number of units sold is as follows:

  $Numberofunitssold=Sales/Sellingpriceperunit$

Number of units sold in Company A: =$208000/$65=3200 units

2. Variable cost per unit in case of Company A:

  $Variablecostperunit=Totalvariablecosts/Unitssold$

Variable cost per unit in case of Company A: &150400/3200=$47 per unit

3. Contribution margin of Company A:

  $Contributionmargin=Sales-Variablecosts$

Contribution Margin =$208000-$150400=$57600

4. Contribution margin per unit of Company A:

  $Contributionmarginperunit=Contributionmargin/Unitssold$

=$57600/3200=$18 per unit

5. Fixed cost of Company A:

  $FixedCosts=Contribution-NetIncome$

=$57600-$46400=$11200

6. Calculation fixed cost per unit of Company A:

  $Fixedcostperunit=Totalfixedcost/Unitssold$

=$11200/3200=$3.50 per unit

7. Calculation of net income of Company A:

  $Netincomeperunit=NetIncome/Unitssold$

=$46400/3200=$14.50 per unit

8. Calculation of Sales of Company B:

  $Sales=Contribution+Variablecost$

=$43450+$39500=$82950

9. Calculation of sales per unit of Company B:

  $Sellingpriceperunit=Totalsales/Unitssold$

=$82950/1975=$42 per unit

10. Variable cost per unit of Company B:

  $Variablecostperunit=Totalvariablecosts/Unitssold$

=$39500/1975=@20 per unit

11. Contribution per unit of Company B:

  $Contributionmarginperunit=Contributionmargin/Unitssold$

= $43450/1975=$22 per unit

12. Calculation of Fixed cost per unit of Company B:

  $Fixedcostperunit=Totalfixedcost/Unitssold$

= $19750/1975=$10 per unit

13. Calculation of net income of Company B:

  $Netincome=Contribution-Fixedcost$

=$43450-$19750=$23700

14. Calculation of Net income per unit of Company B:

  $Netincomeperunit=NetIncome/Unitssold$

=$23700/1975=$12 per unit