# 28

A firm makes and sells a bed cover. The firm sells the bed covers for $150 each and incurs $5250,000 of fixed costs each year. To make each cover requires $45 of direct materials and .75 direct labor hours. The firm pays its highly skilled workers $60 per hour and variable overhead is applied at the rate of $20 per direct labor hour. This past year 25,000 covers were sold and the firm is evaluating what effect a change in sales volume would have on its contribution margin.

What change in contribution margin should the firm experience if it increased sales by 10,000 units and fixed costs rose by $50,000 over last year?

$300,000 increase

$400,000 increase

$450,000 increase

$1,450,000 increase

$1,500,000 increase