Question

Bryan Jared Co. is a large company that segments its business into cost and profit centers. The Cost center for the manufacture of Product AC2 incurred the following costs in the previous period:

Direct Labor:	$60/unit
Direct Materials:	$20/unit
Variable Overhead:	$35/unit
Traceable Fixed Costs:	$225,000
Common Fixed Costs:	$300,000

Sales were 5,000 units last period. Each unit sells for $200. The AC2 Department is being evaluated on overall profitability. Last period the department margin was $100,000.

By how much did the department margin increase or decrease this period?

Answer 1

Department margin will not include Common-Fixed Costs as it is not directly related to the department but allocated to each department on some basis.

Department margin will be equal to the difference in the sales and all the expenses i.e. Direct material, direct labor, variable overheads and traceable fixed costs.

S. No.	Particulars		Amount
a.	Sale Price per unit		$200
b.	less: Cost
	Direct labor per unit	$60
	Direct material per unit	$20
	Variable overheads	$35	$115
c.	Contribution margin per unit (a-b)		$85
d.	Total Units sold		5,000
e.	Total Contribution margin (c*d)		$425,000
f.	Traceable fixed costs		$225,000
g.	Department margin (e-f)		$200,000

Department margin increased by $100,000 this period.