Question

Christensen Corporation Christensen Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $173.00 per unit. Sales Volume Cost of Goods Sold Sllng & Administrative Costs Total Costs 4,010 units 5,010 units S307,567S384,267 317993 5337,173 5625,560$721,440 1) For the total costs including both COGS and S&A costs, using high-low method to identify the cost formula. 2) What is the total variable costs and contribution margin when 4,350 units are sold?

Answer 1

Solution 1:

Variable cost per unit using high low method = (Total cost at high level - Total cost at low level) / (High level activity - Low level activity)

= ($721,440 - $625,560) / (5010 - 4010) = $95.88 per unit

Fixed cost = $721,440 - (5010*$95.88) = $241,081

Cost formula = $241,081 + $95.88 X

Solution 2:

Contribution margin per unit = Selling price - Variable cost = $173 - $95.88 = $77.12 per unit

Total variable cost when 4350 units are sold = 4350 * $95.88 = $417,078

Contribution margin when 4350 units are sold = 4350 * $77.12 = $335,472