Question

Your product unit costs are expected to be $2.50 per pair. Shipping and delivery costs to retailers are estimated at $1.70 per unit. In addition, you will have to pay commissions of $.30 per unit sold to the sales representatives. You want a “markup” of 50% and your retailers want desired a mark-up before their expenses of 40 percent In addition, you want a salary of $7,000 per month. Other administrative expenses will be $2,500 per month. Find unit contribution margin before additional expenses.

$2.25

$9.45

$2.75

$2.17

$6.75

Answer 1

Product unit costs = $2.50

Shipping and delivery costs = $1.70

Commission = $0.30

Cost of product = Product unit costs + Shipping and delivery costs + Commission

= $2.50 + $1.70 + $0.30

= $4.50

Margin of the Product = Cost of product * margin required

= $4.50 * 50%

= $2.25

Selling Price of product = Cost of Product + Margin of the product

= $4.50 + $2.25

= $6.75

Contrbution margin before additional expenses = Selling price of product - Cost of product

= $6.75 - $4.50 = $2.25

Therefore, Contribution margin before additional expenses is $2.25