Answered

Westonci.ca is the premier destination for reliable answers to your questions, brought to you by a community of experts. Discover in-depth answers to your questions from a wide network of experts on our user-friendly Q&A platform. Get precise and detailed answers to your questions from a knowledgeable community of experts on our Q&A platform.

The following income statements are provided for Li Company's last two years of operation: Year 1 Year 2 Number of units produced and sold 4,500 4,100 Sales revenue $ 69,750 $ 63,550 Cost of goods sold 41,700 38,000 Gross margin 28,050 25,550 General, selling, and administrative expenses 17,500 16,300 Net income $ 10,550 $ 9,250 Assuming that cost behavior did not change over the two-year period, what is Li Company's contribution margin in Year 2?

Sagot :

abiolataiwo2015

Answer:

$13,325

Explanation:

Calculation to determine Li Company's contribution margin in Year 2

First step is to calculate the Variable cost per unit

Using this formula

Variable cost per unit = Change in costs ÷ Change in activity Cost of goods sold

Let plug in the formula

Variable cost per unit = (41,700 − 38,000) ÷ (4,500 units − 4,100 units)

Variable cost per unit =3,700/400

Variable cost per unit = $9.25 per unit

Second step is to calculate the Selling and administrative expense

Variable cost per unit = (17,500- 16,300) ÷ (4,500 units − 4,100 units)

Variable cost per unit =1,200/400 units

Variable cost per unit = $3.00 per unit

Now let calculate the Contribution margin in Year 2

Using this formula

Contribution margin = Sales revenue − Variable costs

Let plug in the formula

Contribution margin= $ 63,550 − [4,100 units × ($9.25 per unit + $3.00 per unit)]

Contribution margin=$ 63,550-(4,100 units×$12.25)

Contribution margin=$ 63,550-$50,225

Contribution margin = $13,325

Therefore Li Company's contribution margin in Year 2 is $13,325

We appreciate your time. Please come back anytime for the latest information and answers to your questions. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. We're glad you chose Westonci.ca. Revisit us for updated answers from our knowledgeable team.