# What is the contribution margin per unit?

Problem 8-38 Variable Costing, Absorption Costing, Inventory Valuation

Zeitgeist Company manufactures silicon sleeves for MP3 players. In August 2013, Zeitgeist began producing the colorful sleeves. During the month of August, 16,000 were produced, and 14,750 were sold at \$6.95 each. The following costs were incurred:

Direct materials

\$26,880

Direct labor

6,720

Variable overhead

5,920

Fixed overhead

28,160

A selling commission of 8% of sales price was paid. Administrative expenses, all fixed, amounted to \$37,890.

Required:

1. Calculate the unit cost and the cost of ending inventory under absorption costing. (Note:Round unit cost to the nearest cent and cost of ending inventory to the nearest dollar.)

2. Calculate the unit cost and the cost of ending inventory under variable costing. (Note:Round unit cost to the nearest cent and cost of ending inventory to the nearest dollar.)

3. What is the contribution margin per unit? (Note:Round to the nearest cent.)

4. CONCEPTUAL CONNECTION Zeitgeist believes that multicolored sleeves will really take off after one year of sales. Management thinks August, 2014 sales will be twice as high as August, 2013 sales. Prepare an income statement for August, 2014 using the assumed higher level of sales. Which costing method should be used—absorption costing or variable costing?

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