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1 August, 10:11

Suppose that Larimer Company sells a product for $24. Unit costs are as follows:

Direct materials $4.98

Direct labor 2.10

Variable factory overhead 1.00

Variable selling and administrative expense 2.00

Total fixed factory overhead is $26,500 per year, and total fixed selling and administrative expense is $15,260.

Calculate the variable cost per unit and the contribution margin per unit.

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  1. 1 August, 12:08
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    Unitary variable cost = $8.08

    Contribution margin = $15.92

    Explanation:

    Giving the following information:

    Direct materials $4.98

    Direct labor 2.10

    Variable factory overhead 1.00

    The variable cost per unit is the sum of direct material, direct labor, and variable overhead.

    Unitary variable cost = 4.98 + 2.1 + 1 = $8.08

    The contribution margin per unit is the difference between the selling price and the unitary variable cost:

    Contribution margin = 24 - 8.08 = $15.92
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