Rigby's product manager is considering lowering the price of the don product by $2.50 and wants to know what the impact will be on the product’s contribution margin. Assuming no inventory carry costs, Don's contribution margin, if the price is lowered, will be 4.00%
“Contribution margin suggests you the mixture quantity of sales to be had after variable expenses to cowl fixed prices and provide earnings to the organization,” Knight says. you would possibly think about this as the part of income that allows offsetting fixed costs.
Contribution Margin = Net Revenue - Variable Expenses
Material Cost = 604 * 14.36 = 8673.44
Labor Cost = 604 * 7.09 = 4282.36
Current price = $35
Price is lowered by $2.5 ,then new price will be = $35 - $2.5 = $32.50
Therrefore, New Sales = 604 * 32.5 = $19630
Variable expenses = 8673.44 + 4282.36 = 12955.8
Contribution margin = 19630 - 12955.8 = 6674.2
Contrinution margin ratio = contribution margin / net sales
New Contribution margin = 6674.2/19630 = 34.00%
The contribution margin is beneficial for figuring out how income, variable costs, and fixed expenses all affect operating profit. It offers enterprise owners a manner of assessing how numerous income degrees will affect profitability.
Learn more about contribution margin here brainly.com/question/24881206
#SPJ4
