The selling price of a unit is $20 and the variable product cost per unit is $14.In addition, a sales commission of 5% is paid on each sale.If the variable product cost per unit increases by 1%, what will be the new contribution margin per unit?

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Quizplus · Accepted Answer

The original contribution margin per unit is $20 - $14 = $6. With a 5% sales commission on the selling price of $20, the commission is $1 ($20 * 5%), reducing the contribution margin to $5 ($6 - $1). If the variable cost increases by 1%, the new variable cost is $14 * 1.01 = $14.14. The new contribution margin per unit is $20 - $14.14 = $5.86, minus the $1 commission, resulting in $4.86.

The Selling Price of a Unit Is $20 and the Variable