Tempcon, Inc. sells and installs furnaces for $3,000 per furnace. The following cost formula relates to last year's operations at Tempcon:
Y = $125,000 + $1,800X
If Tempcon sold and installed 500 furnaces last year, what was its total contribution margin last year?
A) $475,000
B) $900,000
C) $1,025,000
D) $600,000

Question

Quizplus · Accepted Answer

Based on the given volume and average cost data, the variable cost per unit is calculated as $8.50 per unit and the total fixed cost is calculated as $3,000.

For the second question, the contribution margin can be calculated as follows:
Contribution margin = Sales - Variable costs
Given that Tempcon sells and installs 500 furnaces at a price of $3,000 per furnace, its sales revenue will be $1,500,000. The variable costs can be calculated by substituting the sales volume into the cost formula:
Variable costs = $1,800X = $1,800(500) = $900,000
Therefore, the contribution margin is:
Contribution margin = $1,500,000 - $900,000 = $600,000

Hence, the answer is D.