Question

Monica has found that her contribution margin per hour of time for her highest selling product is $2,500. She wants to dedicate an extra 40 hours a month to this product, but she needs to know the increase in total contribution margin if she does this. The product generally sells for $100 a unit. What would be the increase in total contribution margin for this product?
$62,500
$100,000
$160,000
$78,300

Answer 1

Answer:

The increase in total contribution margin for this product is $100,000

Explanation:

Contribution margin = Sales - variable cost

It is a difference between sales and variable cost per unit or dollar amount

In the question, the contribution margin per hour and extra hours is given which help to compute the increase in the total contribution margin. The computation is shown below:

= Contribution margin per hour × Extra hours

= $2,500 × 40 hours

= $100,000

The general sale cost should not be taken in the computation part because it is an irrelevant.

Hence, the increase in total contribution margin for this product is $100,000

Answer 2

The increase in total contribution margin for this product is $100,000

Contribution margin refers to the difference between the sales of goods and the variable costs that are linked with the production

Further Explanation

Contribution margin can be expressed as:

Contribution = Sales revenue – Variable costs

The formula can also be used as ration when determining to get an answer in percentage.

When the formula is used as ratio, Contribution margin can be expressed as:

Contribution margin ratio = sales revenue – variable cost/sales revenue

From the given question,  

• The contribution margin per hour = $2,500
• The extra hour she intends to dedicate a month to the product = 40 hours

Therefore, to determine the total combination margin for this product, then we have to multiply the contribution margin per hour by the extra hour she intends to dedicate to the product.

This can be expressed as:

Contribution margin per hour x Extra hour

Let the increase in the total contribution margin for the product = X

Therefore:

X = $2,500$ × $40 hours$

X= $100,000.$

Therefore, the increase in total contribution margin for this product is $100,000

Notably, the general sales cost is not always relevant when calculating contribution margin.

LEARN MORE:

• Monica discovered that she can bake five pies in three hours without giving up production of any cakes brainly.com/question/3948260
• Finch Manufacturing Company established the following standard price and cost data. Sales price $ 8.90 per unit Variable manufacturing cost $ 3.60 brainly.com/question/13871165

KEYWORDS:

• variable cost
• contribution margin
• monica
• product
• total cost