Question

Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is:

Answer 1

Answer:

$12

Explanation:

Contribution margin is the net of sale amount and variable cost. It is the amount of return available to recover the fixed cost and make profit from after that for the business.

Selling price = $30

Only Variable manufacturing cost and Selling commission  is consider as variable costs for the calculation of contribution margin because $4 per unit administrative cost  is calculated on the current level of activities, it will not remains the same.

Variable manufacturing cost = $15

Selling commission = $30 x 10% = $3 per unit

Total Variable cost = $15 + $3 = $18

Contribution margin per unit = Selling price - Variable costs = $30 - $18 = $12