Question

Razor Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is Fluoro2211. The selling price and cost per unit data for 9,170 units of Fluoro2211 are as follows.

	Per Unit Data
Selling Price		$	490
Direct Materials			190
Direct Labor			32
Variable Manufacturing Overhead			29
Fixed Manufacturing Overhead			47
Variable Selling			20
Fixed Selling and Administrative			27
Total Costs			345
Operating Margin		$	145

During the next year, sales of Fluoro2211 are expected to be 10,170 units. All costs will remain the same except for fixed manufacturing overhead, which will increase by 20%, and direct materials, which will increase by 10%. The selling price per unit for next year will be $500. Based on these data, Razor Inc.'s total contribution margin for next year will be: (CMA adapted)

Answer 1

Total contribution margin for next year = (Selling price - Variable cost per unit) x Units of sales

Variable cost per unit = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Variable Selling

= (190 x 110%) + 32+ 29 + 20

= 290 per unit

Therefore, Total contribution margin for next year = (500 - 290) x 10,170 units

= $ 2,135,700