Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 800,000 units, the company pays $600,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $250,000 of which $70,000 are fixed costs. What is the amount of contribution margin per unit?
A) $0.400
B) $0.5375
C) $0.250
D) None of these is correct.

Question

Quizplus · Accepted Answer

The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit. The variable production costs are $300,000 (half of $600,000), and the variable selling costs are $180,000 ($250,000 - $70,000). Total variable costs are $480,000 for 800,000 units, which is $0.60 per unit. The selling price is $1.00, so the contribution margin per unit is $1.00 - $0.60 = $0.40.

Rocky Mountain Bottling Company Produces a Soft Drink That Is