The problem is below, but here’s my question:
Where does direct materials fall under, Variable costs or Fixed Costs?
Same for direct labor, Variable or fixed?
I’m trying to find the answer for the contribution margin but I can’t get the right answer because I think I’m placing these two costs in the wrong places. I thought the materials would go under fixed and labor under variable costs but it’s wrong. Could it be that they both go under variable costs?
Viejol Corporation has collected the following information after its first year of sales. Sales were $2,000,000 on 100,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $500,000, direct labor $581,000, administrative expenses $272,000 (20% variable and 80% fixed), and manufacturing overhead $378,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.