Question

Sandel Company makes 2 products, footballs and baseballs. Additional information follows: Footballs Baseballs Units 4,000 2,500 Sales $60,000 $25,000 Variable costs 36,000 7,000 Fixed costs 9,000 9,000 Net income $15,000 $9,000 Profit per unit $3.75 $3.60 Compute the Contribution margin per unit. (Round answers to 2 decimal places, e.g. 15.25.) Contribution margin per unit Footballs $ Baseballs $ Sandel has unlimited demand for both products. Therefore, which product should Sandel tell his sales people to emphasize?

Answer 1

Answer:

Contribution margin per unit Footballs $6 per unit, Baseballs $7.2 per unit.

Baseball.

Explanation:

FootBalls:

Sale Price per unit = Sales / Units

Sale Price per unit = $60,000 / 4,000 units

Sale Price per unit = $15 per unit

Variable Cost per unit = Variable Cost / Units

Variable Cost per unit = $36,000 / 4,000

Variable Cost per unit = $9 per unit

Contribution Margin per unit = Sale Price per unit - Variable Cost per unit

Contribution Margin per unit = $15 per unit - $9 per unit

Contribution Margin per unit = $6 per unit

Baseballs:

Sale Price per unit = Sales / Units

Sale Price per unit = $25,000 / 2,500 units

Sale Price per unit = $10 per unit

Variable Cost per unit = Variable Cost / Units

Variable Cost per unit = $7,000 / 2,500

Variable Cost per unit = $2.8 per unit

Contribution Margin per unit = Sale Price per unit - Variable Cost per unit

Contribution Margin per unit = $10 per unit - $2.8 per unit

Contribution Margin per unit = $7.2 per unit

Contribution Margin per Unit tells Sandel that which product contribute higher in consuming fixed cost after contributing the variable cost from sales, in order to earn greater profit. Hence, Sandal should tell his people to emphasize on Baseball, as have, higher Contribution Margin per unit.