What is the contribution margin per unit for the following company that sells only 1 product?Selling price per unit $9.30Fixed production costs $50,600Fixed selling and admin costs $9,400Break-even units 15,000
Question
What is the contribution margin per unit for the following company that sells only 1 product?Selling price per unit 50,600Fixed selling and admin costs $9,400Break-even units 15,000
Solution
The contribution margin per unit can be calculated using the formula:
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
However, in the given data, the variable cost per unit is not provided. But we can calculate it using the break-even units and fixed costs.
First, we need to calculate the total fixed costs:
Total Fixed Costs = Fixed Production Costs + Fixed Selling and Admin Costs Total Fixed Costs = 9,400 = $60,000
Next, we calculate the total contribution margin at the break-even point, which is equal to the total fixed costs (since at the break-even point, total revenue equals total costs):
Total Contribution Margin at Break-Even = Total Fixed Costs = $60,000
Now, we can calculate the contribution margin per unit:
Contribution Margin per Unit = Total Contribution Margin at Break-Even / Break-Even Units Contribution Margin per Unit = 4
Finally, we can calculate the variable cost per unit:
Variable Cost per Unit = Selling Price per Unit - Contribution Margin per Unit Variable Cost per Unit = 4 = $5.30
So, the contribution margin per unit for the company is $4.
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