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Chapter 21: Q22E (page 1172)

Analyzing profitability Sampler Company sells two products, Sigma and Zeta, with a sales mix of 70% and 30%, respectively. Sigma has a contribution margin per unit of \(26, and Zeta has a contribution margin per unit of \)21. The company sold 700 total units in September. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

Short Answer

Expert verified
  • The contribution margin by Sigma is $12,740 and Zeta is $4,410.
  • Total contribution margin for the company is $17,150.

Step by step solution

01

Calculation of number of units of each product sold:

Particulars

Sigma

Zeta

Total number of units

700

700

Sales mix

70%

30%

Number of units

490

210

02

Calculation of the total amount each product contributed to the coverage of fixed costs

Particulars

Sigma

Zeta

Number of units

490

210

Contribution margin per unit

$26

$21

Contribution Margin

$12,740

$4,410

03

Calculation of total contribution margin for the company

Total contribution =Contribution margin by Sigma + Contribution margin by Zeta

=$12,740+$4,410

=$17,150

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Most popular questions from this chapter

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the “candy season” from Halloween through Valentine’s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why

What are the two components that can affect contribution margin? Why is it important to investigate both?

Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.

Requirements:

  1. Which costing method produces the highest operating income? Explain why.
  2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why

Explain how the sales mix can affect the profitability of a company.

Preparing variable and absorption costing income statements Linda’s Foods produces frozen meals that it sells for \(7 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda’s Foods’s first month in business:

January 2018

Units produced and sold:

Sales 1,000 meals

Production 1,200 meals

Variable manufacturing cost per meal \) 3

Sales commission cost per meal 1

Total fixed manufacturing overhead 660

Total fixed selling and administrative costs 500

Requirements:

  1. Compute the product cost per meal produced under absorption costing and under variable costing.
  2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.
  3. Is operating income higher under absorption costing or variable costing in January?
See all solutions

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