Question

Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 million dollars in combined promotion and sales budget, the Creak product manager wishes to achieve a product contribution margin of 35%. Given their product currently is priced at $35.00, what would they need to limit the material and labor costs to?
a. $24.50
b. $22.75
c. $23.00
d. $21.00

Answer 1

Answer:

b. $22.75

Explanation:

We know that

Contribution margin per unit= Sales price per unit - variable cost per unit

Since the selling price is $35

And, the contribution margin is 35%

Therefore, the contribution margin per unit would be

= $35 × 35 per cent

= $12.25

Now add these figures in the formula above.

Hence, the value would be equal to

= $35 - $12.25

= $22.75

The inventory and labor costs are included in the variable cost