Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. If Maddie sells a screened t-shirt for $15 each, what is the contribution margin for t-shirts?
A) $7 a unit
B) $9 a unit
C) $13 a unit
D) $15 a unit

Question

Quizplus · Accepted Answer

The contribution margin is calculated by subtracting the variable costs from the selling price. For t-shirts, the selling price is $15. The variable costs include the cost of the blank t-shirt ($6) and the cost of materials for silk screening ($2), totaling $8. Therefore, the contribution margin per t-shirt is $15 - $8 = $7 a unit. Fixed costs like rent and the lease for the silk screen machine are not considered in calculating the contribution margin per unit.

Maddie Noticed That Many Students on Campus Had T-Shirts and Sweatshirts