Vaughn, Inc. sold 17,000 units last year for $50 each. Variable costs per unit were $15 for direct materials, $15 for direct labor, and $10 for variable overhead. Fixed costs were $10,000 in manufacturing overhead and $50,000 in nonmanufacturing costs.a. What is the total contribution margin?b. What is the unit contribution margin?c. What is the contribution margin ratio?d. If sales increase by 5,000 units, by how much will profits increase?
What will be an ideal response?
a. $170,000 = (17,000 × $50) - [17,000 × ($15 + $15 + $10)]
b. $10 = $50 - ($15 + $15 + $10)
c. 20% = $170,000/$850,000 or $10/$50
d. $50,000 = $10 × 5,000
Total contribution margin = Sales revenue - Variable costs. Unit contribution margin = Sales price - Unit variable costs. Contribution margin ratio = Contribution margin/Sales revenue. Increase in profit = Unit contribution margin × increase in activity.
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