Question

Cullumber Company makes 2 products, sleep masks and sleep socks. Additional information follows:

		Sleep Masks			Sleep Socks
Units		6,500			5,000
Sales		$135,000			$100,000
Variable costs		61,030			32,000
Fixed costs		34,320			34,000
Net income		$39,650			$34,000
Profit per unit		$6.10			$6.80

Compute the Contribution margin per unit. (Round answers to 2 decimal places, e.g. 15.25.)

		Contribution margin per unit
Sleep Masks		$enter a dollar amount rounded to 2 decimal places
Sleep Socks		$enter a dollar amount rounded to 2 decimal places

Cullumber has unlimited demand for both products. Therefore, which product should the company encourage its sales people to emphasize?

select a product

Answer 1

The formula to compute for contribution margin per unit is:

Contribution Margin Per Unit = (Sales - Variable Cost) / Units Sold

Sleep Mask = (135,000 -61,030) / 6,500 = 11.38

Sleep Sock = (100,000 -32,000) / 5,000 = 13.60

	Contribution Margin per Unit
Sleep Masks	11.38
Sleep Socks	13.60

Based on the above table, Cullumber Company should focus on selling sleep socks as it has higher contribution margin than sleep masks.