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Financial & Managerial Accounting
Found in: Page 868
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Refer to the information about Ramort Company in QS 19-5. If Ramort doubles its production to 40,000 units while sales remain at the current 20,000-unit level, by how much would the company’s contribution margin increase or decrease under variable costing?

The contribution margin of the company will decrease by $660,000.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Contribution Margin

Contribution margin refers to the amount left with a business organization after recovering all the variable costs from its sales revenue. The contribution margin is computed by deducting variable expenses from revenues.

Step 2: Determination of increase or decrease in contribution margin

Particulars

Amounts ($)

Sales (20000*60)

$1,200,000

Less: Variable costs:

Direct material (40000*10)

400,000

Direct labor (40000*12)

480,000

Variable overhead (40000*3)

120,000

Variable selling and administration cost (40000*2)

80,000

Contribution margin

$120,000

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