Question

United Merchants Company sells 37,000 units at $39 per unit. Variable costs are $30.81 per unit, and fixed costs are $154,500.

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	$

Answer 1

a. Contribution margin ratio = ( Contribution margin / Selling price per unit ) * 100

where, Contribution margin = Selling price per unit - Variable cost per unit = $39 per unit - $30.81 per unit = $8.19 per unit.

Contribution margin ratio = ( $8.19 / $39 ) * 100 = 21%.

b. Unit contribution margin = Selling price per unit - Variable cost per unit = $39 per unit - $30.81 per unit = $8.19 per unit.

c. Income from operations

Income from Operations
S. No.	Particulars	Amount
i.	Sales ( $39 * 37,000 units )	$1,443,000
ii.	Variable costs ( $30.81 * 37,000 units )	$1,139,970
iii.	Total Contribution margin ( i - ii )	$303,030
iv.	Fixed costs	$154,500
v.	Income from operations ( iii - iv )	$148,530