Question

Red Hawk Enterprises sells handmade clocks. Its variable cost per clock is $5.20, and each clock sells for $13.00. Calculate Red Hawk's unit contribution margin. Calculate Red Hawk's contribution margin ratio. Suppose Red Hawk sells 2,250 clocks this year. Calculate the total contribution margin.

Answer 1

Answer:

Contribution margin per unit = $7.8

Contribution Margin Ratio = 60% or 0.6

Total contribution margin at 2250 units = $17550

Explanation:

The unit contribution is the difference in the unit selling price and unit variable cost for a product.

The unit contrbution margin for Red Hawk = 13 - 5.2 = $7.8 per unit

The contribution margin ratio simply represents the unit contribution margin as a percentage of selling price.

The contribution margin ratio = contribution margin per unit / selling price per unit

For Red Hawk CM Ratio = 7.8 / 13 = 0.6 or 60%

Total Contribution margin at 2250 units = 7.8 * 2250 = $17550