Question

Question Help It costs​ Homer's Manufacturing $0.95 to produce baseballs and Homer sells them for $9 a piece. Homer pays a sales commission of​ 5% of sales revenue to his sales staff. Homer also pays $16,000 a month rent for his factory and​ store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 72,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of​ June, what would be his contribution​ margin?

Answer 1

Answer:

Ans. Homer´s contribution Margin is  $551.000 , in percentage is 84.44%

Explanation:

Hi, to find the contribution margin in dollars and in percentage we need to use two formulas.

$ContribMargin(Dollars)=Total Sales-TotalVariable Costs$

$ContribMargin(Percent)=\frac{Total Sales-TotalVariableCosts}{Total Sales}$

Now, here we have only two types of variable costs, the manufacturing cost of $0.95 per baseball and that 5% of sales revenue and those are the only costs we should be using, the other costs are fixed so there is no room for them in order to find the contribution margin.

It should look like this:

$ContribMargin(Dollars)=72,500*9-(72,500*0.95+72,500*9*0.05)$

$ContributionMargin(Dollars)=652,500-101,500=551,000$

Now, in percentage:

$ContribMargin(Percent)=\frac{652,500-101,500}{652,500}=0.8444$

So the contribution margin in dollars is $551,000, in percentage is 84.44%

Best of luck.