Question

7. You are going to open a business making custom cabinets. You can sell each cabinet for $80. It takes a cabinetmaker approximately 45 minutes to make one cabinet. Each cabinetmaker works an 8-hour day earning $18 per hour. Each cabinet uses $25 in raw materials. You usually produce cabinets 20 days a month and can employ two cabinetmakers. You estimate that your fixed costs are $5,000 per month. a. What is your contribution margin

Answer 1

Answer:

Contribution Margin is 51.875%

Explanation:

Contribution Margin = Contribution/Selling Price × 100

Contribution

Contribution = Selling Price/ unit - Variable Costs/ Unit

Selling Price                                                     $80.00

Less Variable Costs

Raw Materials                                                   ($25.00)

Direct Labour (45mins/60mins×$18)               ($13.50)

Contribution                                                      ($41.50)

Contribution Margin

$41.50/$80.00×100=51.875%