Question

sell pants that have $5 in variable costs (direct materials and labor). I have $100,000 in...

sell pants that have $5 in variable costs (direct materials and labor). I have $100,000 in fixed costs, and I expect to sell 10,000 units. I sell the pants for $95/pair. What is my margin on price?

250%

84%

25%

None of the above
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Answer #1

Answer is 84%

Selling Price per unit = $95.00
Variable Cost per unit = $5.00
Fixed Costs = $100,000
Unit Sales = 10,000

Sales = Selling Price per unit * Unit Sales
Sales = $95.00 * 10,000
Sales = $950,000

Variable Costs = Variable Cost per unit * Unit Sales
Variable Costs = $5.00 * 10,000
Variable Costs = $50,000

Income from Operation = Sales - Variable Costs - Fixed Costs
Income from Operation = $950,000 - $50,000 - $100,000
Income from Operation = $800,000

Margin on Sales = Income from Operation / Sales
Margin on Sales = $800,000 / $950,000
Margin on Sales = 0.84 or 84%

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