Question

Miller Company's total sales are $140,000. Total selling and administrative expenses are $18,000. The company maintains no beginning or ending inventories and its manufacturing overhead costs are entirely fixed costs. Cost Relationships: (1) The company's direct labor cost is $15,000, which represents 30% of its total conversion cost. (2) The $15,000 direct labor cost also represents 40% of total prime cost. (3) The only variable selling and administrative expense is sales commission which is 5% of total sales. Required: 1. What is the total manufacturing overhead cost? 2. What is the total direct materials cost? 3. What is the total manufacturing cost? 4. What is the total variable selling and administrative cost? 5. What is the total variable cost? 6. What is the total contribution margin, when sales are $140,000?

Answer 1

1)	Direct labor cost		$15,000	Total conversion cost is the sum total of labor cost and manufacturing overheads.
	% of labor cost in total conversion cost		30%
	Total conversion cost(15000/30 * 100)		$50,000
	Less : Direct labor cost		$15,000
	Total Manufacturing overhead cost		$35,000
2)	Direct labor cost		$15,000	Prime Cost is the sum total of direct material cost and direct labor cost.
	% of labor cost in total prime cost		40%
	Total prime cost (15000/40 * 100)		$37,500
	Less : Direct labor cost		$15,000
	Total Direct Material cost		$22,500
3)	Direct labor cost		$15,000	Total manufacturing cost includes direct labor cost, direct material cost and manufacturing overheads.
	Direct material cost		$22,500
	Manufacturing overhead cost		$35,000
	Total manufacturing cost		$72,500
4)	Total Sales		$140,000	Variable selling and administrative cost is sales commission which is 5% of total sales.
	Variable selling and administrative cost (5% * 140000)		$7,000
5)	Direct material cost		$22,500	Total variable cost includes direct material cost, direct labor cost and variable selling and administrative cost.
	Direct Labor cost		$15,000
	Variable selling and administrative cost		$7,000
	Total Variable Cost		$44,500
6)	Total sales		140000	Contribution margin is calculated by subtracting total variable cost from total sales.
	Less : Total variable cost		$44,500
	Total contribution		$95,500