Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio (rounded to the nearest whole percent) and the unit contribution margin are
A) 47% and $11 per unit
B) 53% and $7 per unit
C) 47% and $8 per unit
D) 52% and $11 per unit

Question

Quizplus · Accepted Answer

Contribution margin can be calculated as follows:

Contribution margin = Sales - Variable costs

Contribution margin = (25,000 units × $21 per unit) - (25,000 units × $10 per unit)

Contribution margin = $525,000 - $250,000

Contribution margin = $275,000

The contribution margin ratio can be calculated as follows:

Contribution margin ratio = Contribution margin ÷ Sales

Contribution margin ratio = $275,000 ÷ $525,000

Contribution margin ratio = 0.5238 or 52% (rounded to the nearest whole percent)

The unit contribution margin can be calculated as follows:

Unit contribution margin = Contribution margin ÷ Number of units

Unit contribution margin = $275,000 ÷ 25,000 units

Unit contribution margin = $11 per unit

Therefore, the correct answer is D, with a contribution margin ratio of 52% and a unit contribution margin of $11 per unit.

Zeke Company Sells 25,000 Units at $21 Per Unit