CMA Study Group

Valyn Corporation employs an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Valyn's planned and actual operations for the calendar year are presented below.



The planned per unit cost figures shown in the above schedule were based on Valyn producing and selling 140,000 units. Valyn uses a predetermined manufacturing overhead rate for applying manufacturing overhead to its product; thus, a combined manufacturing overhead rate of $9.00 per unit was employed for absorption costing purposes. Any over- or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the reporting year.

The beginning finished goods inventory for absorption costing purposes was valued at the previous year's planned unit manufacturing cost which was the same as the current year's planned unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price was $70.00 per unit.

Valyn Corporation's actual manufacturing contribution margin for the year calculated under variable costing basis was

$5,550,000

$4,375,000

$5,625,000

$4,200,000

Contribution margin is revenues - variable costs.  We established $4,375,000 as the total variable costs in another version of this problem. Revenues is $70 unit price * 125,000 actual units = $8,750,000 is total revenues.

$8,750,000 revenues - $4,375,000 variable costs = $4,375,000 contribution margin

Hi there, please help me understand if there is difference between 'variable manufactory cost' and variable cost.
i think variable manufactory cost is $25(=DM$12+DL$9+VOH$4),
variable cost is $35(=DM$12+DL$9+VOH$4+Vselling$8+Vadm$2)
manufactory contribution margin = revenue - variable manufactory cost = (70-25)x125000=5,625,000
contribution marging = revenue - variable cost = (70-35)x125000=4,375,000

contribution margin = p - v

so 70-12-9-4-8-2=35

35*125000 = 4375000

Manufacturing contribution = (70-(12+9+4)*125000=5,625,000/-

You need not to calculate contribution (which is sales - variable cost). you have to calculate only manufacturing contribution (sales - only variable manufacturing cost).

I feel this is how it should be

Sales   [ 125,000 * $70 ]                                                       =   $8,750,000

Beginning inventory [ 35,000 *$25 ]   = $875,000

Plus

Production  [ 130,000 * $25 ]             = $3,250,000

Total                                                   =  $4,125,000

Minus

Ending Inventory [ 40,000 * 25 ]     = $1,000,000

Manufacturing COGS                        =  $ 3, 125,000

Manufacturing  Contribution margin  =                         $ 5,625,000 [$8,750,000 -  $ 3,125,000]

*Selling and Admin variable expenses would`nt be taken as it occurs after manufacturing