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19 December, 05:35

Barclay Corporation produced 250,000 watches that it sold for $32 each during year 2. The company determined that fixed manufacturing cost per unit was $16 per watch. The company reported a $2,400,000 gross margin on its year 2 financial statements. Determine

a. The variable cost per unit.

b. The total variable cost.

c. The total contribution margin.

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  1. 19 December, 06:00
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    a. 6.4$

    b. 1 600 000$

    c. 6 400 000$

    Explanation:

    First, let's determine net sales. The total sales volume should be multiplied with product price.

    Net sales = 250 000*32$ = 8 000 000$

    Since we have the gross margin and net sales, we can determine the cost of goods sold (COGS).

    COGS = Net Sales - Gross margin

    COGS = 8 000 000 - 2 400 000 = 5 600 000$

    Now that we have COGS, we can determine the total variable cost:

    Total variable cost = COGS - Total fixed cost

    Total variable cost = 5 600 000 - 250 000 * 16 = 1 600 000$

    So, the variable cost per unit is:

    Total variable cost/Number of units = 1 600 000 / 250 000 = 6.4$

    Lastly, the total contribution margin is:

    Total contribution margin = Sales Revenue - Total variable costs

    Total contribution margin = 8 000 000 - 1 600 000 = 6 400 000$

    This margin is useful when conducting a break-even analysis and determining the price of the product to be sold.
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