Question

A proposed project has fixed costs of $15,000, depreciation expense of $2,200, a sales quantity of...

A proposed project has fixed costs of $15,000, depreciation expense of $2,200, a sales quantity of 700, and EBIT of $1,580. What is the contribution margin per unit?

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Answer #1

EBIT = (Contribution Margin per Unit × Total Units) – Fixed Costs

here fixed costs include all type of costs which are fixed in nature. depreciation is also a fixed cost. so it will also be included in the above formula.

$1,580 = (Contribution Margin per Unit*700) - ($15,000 + $2,200)

$1,580 = (Contribution Margin per Unit*700) - $17,200

$1,580 + $17,200 = Contribution Margin per Unit*700

$18,780‬ = Contribution Margin per Unit*700

Contribution Margin per Unit = $18,780/700 = $26.83

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