Problem 6-2A (Part Level Submission) Lorge Corporation has collected the followi
ID: 2404055 • Letter: P
Question
Problem 6-2A (Part Level Submission)
Lorge Corporation has collected the following information after its first year of sales. Sales were $900,000 on 90,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $76,100; direct labor $240,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $357,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.
(a)
Problem 6-2A (Part Level Submission)
Lorge Corporation has collected the following information after its first year of sales. Sales were $900,000 on 90,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $76,100; direct labor $240,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $357,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.
(a)
Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.)(1) Contribution margin for current year $ Contribution margin for projected year $ (2) Fixed costs for current year $
Explanation / Answer
CVP Statement of Current Year: Sales 900000 Less: Variable cost Direct Material 76100 Direct Labour 240000 Manufacturing Ohh (357000*70%) 249900 Admin Ohh (270000*20%) 54000 Selling expense (250000*40%) 100000 Contribution margin 180000 CVP Statement for projected: Sales (900000+10%) 990000 Less: Variable cost Direct Material (76100+10%) 83710 Direct Labour (240000+10%) 264000 Manufacturing Oh (249900+10%) 274890 Admin OH (54000+10%) 59400 Selling expense (100000+10%) 110000 Contribution margin 198000 Total Fixed cost: Manufacturing OH (357000*30%) 107100 Admin Oh (270000*80%) 216000 Selling OH (250000*60%) 150000 Total Fixed cost: 473100