Question

Estrada Corporation produced 213,000 watches that it sold for $18 each during 2019. The company determined that fixed manufacturing cost per unit was $8 per watch. The company reported a $852,000 gross margin on its 2019 financial statements. Required Determine the variable cost per unit, the total variable cost, and the total contribution margin. Answer is complete but not entirely correct. Variable cost per unit $ 7 Total variable cost 1,491,000 Total contribution margin 2,343,000

Answer 1

Total fixed costs

= Fixed costs per unit x Number of units

= $8 x 213,000

= $ 1,704,000

Net Income = $852,000

Now,

Contribution – Fixed costs = Net Income

So, Total Contribution Margin = Fixed costs + Net Income

= $ 1,704,000 + $852,000

= $ 2,556,000

Total Sales

= Selling price per unit x Number of units

= $18 x 213,000

= $ 3,834,000

Now, Sales – Variable costs = Contribution

So, Total Variable costs = Sales – Contribution

= $ 3,834,000 - $ 2,556,000

= $1,278,000

So, Variable cost per unit

= Total variable costs / Number of units

= $1,278,000 / 213,000

= $6 per unit