Reference no: EM132418481

Problem: You are setting the 2020 Budget for Lastcase Corp. It is expect for the year Lastcase will produce 50,000 units and sell 40,000 units. Each unit sells for $250. The variable costs per unit sold is $100 of direct material, $75 of direct labour, $15 of manufacturing overhead, and $5 of SG&A costs. There is also $500,000 of fixed manufacturing overhead and $750,000 of fixed SG&A.

There has been an ongoing debate in the company if it should be focusing on Contribution Margin or Gross Margin. The belief is that one way will give the company a greater profit, but they are not sure which one.

To help the team understand, you have been asked to complete the budget using both Contribution Margin and Gross Margin. You are to use journal entries to help demonstrate the build-up of the budget. If there is a difference between the two methods, you are to explain why and if the difference is permanent or will it correct itself.