Tyler Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $127.20 per unit. Sales volume (units) 5,000 6,000 Cost of Sales $419,000 $502,800 Selling and Admintrative costs $186,000 $202,200 The best estimate of the total contribution margin when 5,300 units are sold is:

total contribution margin= $144,160

Explanation:

First, we need to calculate the unitary variable cost of sales:

Cost of sales= 419,000/5,000= $83.8

Cost of sales= 502,800/6,000= $83.8

It is all variable.

Now, to estimate the variable component of selling and administrative, we will use the high-low method:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (202,200 - 186,000) / (6,000 - 5,000)

Variable cost per unit= $16.2

Finally, the total contribution margin:

total contribution margin= number of units*unitary contribution margin

total contribution margin= 5,300*(127.2 - 83.8 - 16.2)

total contribution margin= 5,300*27.2

total contribution margin= $144,160

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