Question

2. Carmelita Company sells 40,000 units at $18 per unit. Variable costs are $10 per unit,...

2. Carmelita Company sells 40,000 units at $18 per unit. Variable costs are $10 per unit, and fixed costs are $62,000.

What is the unit contribution margin? _________________________
What is the contribution margin ratio? _________________________
What is income from operations? ___________________________

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Answer #1

Answer a:

Contribution Margin = Selling price (-) Variable cost

= 18 (-) 10

= $ 8

Answer b:

Contribution Margin Ratio = Contribution Margin / Sales * 100

= 8 / 18 * 100

= 44.44%

Answer c:

Income from operations = $ 258,000

Calculations:

Units        40,000
Total Per Unit
Sales $ 720,000 $      18
Less: variable Cost $ 400,000 $      10
Contribution $ 320,000 $        8
Less: fixed Cost $    62,000
Net Income $ 258,000

In case of any doubt or clarification, feel free to come back via comments.

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