A new product is expected to sell for $12. The company would manufacture up to 22,000 units at a variable cost of $5 per unit. Fixed costs would be $150,000. Variable selling and administration expenses would amount to $2.50. Determine the contribution margin per unit and contribution margin rate.

Question

Quizplus · Accepted Answer

The contribution margin per unit is calculated as the selling price minus variable costs (manufacturing and selling/administration). So, $12 - ($5 + $2.50) = $4.50. The contribution margin rate is the contribution margin per unit divided by the selling price: $4.50 / $12 = 0.375.

A New Product Is Expected to Sell for $12