Question

Carla Vista Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes.
Sales price $41.17
Variable cost of goods sold 13.17
Variable selling expenses 11.77
Variable administrative expenses 4.17

Annual fixed expenses:
Overhead $15,210,000
Selling expenses 3,022,500
Administrative expenses 6,337,500

Ivanhoe can produce 1.725,000 cases a year. The projected net income for the coming year is expected to be $2.070,000. Ivanhoe is subject to a 40% income tax rate. During the planning sessions, Ivanhoe's managers have been reviewing costs and expenses. They estimate that the company's variable cost of goods sold will increase 15% in the coming year and that fixed administrative expenses will increase by 5172500. All other costs and expenses are expected to remain the same. Calculate contribution margin per unit for the coming year.

Answer 1

Answer:

Contribution Margin = 25.94%

Explanation:

Contribution Margin = Contribution / Sales

Calculation of Contribution per unit :

Contribution = Sales less Variable Cost

Sales price                                                                         $41.17

Less Variable Costs :

Variable cost of goods sold (13.17  + (13.17   × 15%))        ($15,15)

Variable selling expenses                                               ($11.77 )

Variable administrative expenses                                   ($4.17)

Contribution                                                                     $10.68

Therefore, Contribution Margin = $10.68 / $41.17 × 100 = 25.94%