Question

Calculate the Contribution Margin using the data below: Selling Price per unit $40 Variable Cost per...

Calculate the Contribution Margin using the data below:

Selling Price per unit $40

Variable Cost per unit $18

Fixed Cost per unit $5

Selling/Admin Cost    $4

Selling Commission of 15% of the selling price per sale

Business   Accounting   
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Answer #1

Answer:

In question selling/Admin cost was given.But it is fixed cost or varible cost specifically not mentioned.So we will do the answer in two ways

1. Treat Selling/Admin cost as variable cost.

2.Treat Selling/Admin cost as fixed cost.

Given,

Selling price per unit=$40

Option 1: Treat Selling/Admin cost as variable cost.

Variable cost per unit=18+Selling/Admin cost+Selling Commission

=18+4+(40*15%)

=22+6

=28.

Contribution Margin=Selling Price per unit-Variable cost per unit

=40-28

=12.

Option 2:Treat Selling/Admin cost as fixed cost.

Variable cost per unit=18+Selling Commission

=18+(40*15%)

=18+6

=24.

Contribution Margin=Selling Price per unit-Variable cost per unit

=40-24

=16.

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