Question

Roadside Inc. manufactures the Megalite, and is reviewing the product's cost structure. Accounting records show these costs: factory space: $250,000 per year insurance: $47,000 per year supervisor salaries: $125,000 per year materials: $6.10 per lamp direct labor: $2.29 per lamp recycling charge: $0.43 per lamp Roadside Inc sells the Megalite to wholesalers for $12.31 each. Calculate Roadside's contribution margin as percent of selling price on the Megalite. (Rounding: tenth of a percent. Report 25.3%, for example, as "25.3".) show step by step how you got the answer.

Answer 1

selling price [A]	12.31
Variable cost
less:Material	(6.1)
Direct labor	(2.29)
recycling charge	(.43)
Total variable cost [B]	(8.82)
contribution margin [A-B]	3.49

Contribution margin = contribution margin /selling price

                 = 3.49 /12.31

                  = .284 or 28.4%

***All other cost are fixed in nature .For calculation of contribution margin, only variable cost is considered.