Answer
Iron City's total contribution margin for 2014 is $963,000.
Work Step by Step
To calculate the total contribution margin, we need to determine the variable cost of goods sold (COGS) and then subtract it from the sales revenue:
Total Contribution Margin = Sales Revenue - Variable COGS - Variable Nonmanufacturing Expenses
Given:
Sales Revenue = \$2,250,000
Variable Nonmanufacturing Expenses = \$0
First, we need to find the unit cost of goods sold under variable costing, which is the same as the cost of ending inventory since there are no beginning inventories:
Unit Cost of Goods Sold = Ending Inventory Cost / Units Sold
Unit Cost of Goods Sold = \$7.15 (given ending inventory cost) / 180,000 units (units sold)
Unit Cost of Goods Sold = \$7.15
Now, we can calculate the variable COGS:
Variable COGS = Units Sold × Unit Cost of Goods Sold
Variable COGS = 180,000 units $\times$ \$7.15
Variable COGS = \$1,287,000
Total Contribution Margin = \$2,250,000 - \$1,287,000 - \$0
Total Contribution Margin = \$963,000