Question

The goldfarb company manufactures and sells toasters. each toaster sells for $23.75 and the variable cost per unit is $16.25. goldfarb's total fixed costs are $25,000, and budgeted sales are 8,000 units. what is the contribution margin per unit?

Answer 1

We calculate first for the revenue of the selling 8,000 units of toasters by multiplying 8,000 with the selling price per unit. 

                                Revenue = (8,000)($23.75/unit) = $190,000

Then, we calculate for the total variable cost as below,

                                Variable cost = (8,000)($16.25/unit) = $130,000

Adding the variable cost and the fixed cost will give us a total cost of $155,000.

The contribution margin per unit is therefore,

 

                   Contribution margin per unit = (190,000 – 155,000) / 8,000 = $4.375.