Washington Products had costs of $600,000 when sales equaled 75,000 units. When sales increased by 25,000 units, costs increased by $125,000. The selling price is $9 per unit.Required:(a.) Determine the fixed and variable portions of costs.(b.) Prepare a contribution margin income statement for a month with sales of 80,000 units.
What will be an ideal response?
(a.)
Variable cost per unit = $125,000 / 25,000 = $5.00. Fixed cost = $600,000 - (75,000 × $5.00) = $225,000.
Total Costs = $225,000 + ($5 × units sold)
(b.)
| Revenue (80,000 × $9) | $ | 720,000 | |
| Variable costs (80,000 × $5) | 400,000 | ||
| Contribution margin | 320,000 | ||
| Fixed cost | 225,000 | ||
| Operating profit | $ | 95,000 |
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