Question

Macy Corporation's relevant range of activity is 8,100 units to 16,500 units. When it produces and sells 12,300 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 5.50 Direct labor $ 3.95 Variable manufacturing overhead $ 1.95 Fixed manufacturing overhead $ 3.40 Fixed selling expense $ 1.25 Fixed administrative expense $ 0.95 Sales commissions $ 1.20 Variable administrative expense $ 0.85 If the selling price is $32.00 per unit, the contribution margin per unit sold is closest to:

Answer 1

Answer:

Contribution margin per unit = $18.55

Explanation:

Contribution margin = Net sales value - Variable cost per unit.

Variable cost per unit will be same as that of average variable cost, as is completely proportional to number of units.

Variable cost is 100% avoidable for the units not produced.

Thus,

Total Variable cost per unit shall be:

Direct material = $5.50

Direct Labor = $3.95

Variable manufacturing overhead = $1.95

Sales Commission = $1.20

Variable administrative expense = $0.85

Total variable cost = $13.45

Selling price per unit = $32.00

Therefore, contribution margin per unit = $32 - $13.45 = $18.55