Question

Contribution Margin

Willie Company sells 25,000 units at $26 per unit. Variable costs are $18.20 per unit, and fixed costs are $66,300.

Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

a. Contribution margin ratio (Enter as a whole number.)		%
b. Unit contribution margin (Round to the nearest cent.)	$	per unit
c. Income from operations	$

Part 2

The manufacturing costs of Ackerman Industries for the first three months of the year follow:

	Total Costs		Units Produced
January	$400,350		4,090	units
February	340,560		1,935
March	529,760		6,235

Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar.

a. Variable cost per unit	$
b. Total fixed cost	$

Answer 1

Answers:

Part I:

a) Contribution margin ratio = (Contribution / sales )*100

Contribution = Sales - Variable cost

= $26 - $18.20

Contribution per unit = $7.80

Contribution margin ratio = ($7.80 / $26 )* 100

Contribution margin ratio = 30%

b) Unit contribution margin = Sales - Variable cost

= $26 - $18.20

Unit contribution margin = $7.80 or $8

c) Sales (25000 * $26 per unit ) = $650,000

Less : Variable cost (25,000 * 18.50) = 462,500

Contribution = $187,500

Less : Fixed cost = $ 66,300

Income from operation = $121,200

Part II :