If the Henry Corp. produced 4,000,000 units this year, at a variable cost of $4 per unit and with fixed costs of $1,000,000, and sold all 4,000,000 items at $5 each, its total contribution margin for the year would equal $3,000,000.

Question

Quizplus · Accepted Answer

The calculation for total contribution margin is incorrect. The contribution margin per unit would be $1 ($5 selling price - $4 variable cost) and the total contribution margin would be 4,000,000 units x $1 = $4,000,000. To calculate the net income, the fixed costs ($1,000,000) would need to be subtracted from the total contribution margin, resulting in a net income of $3,000,000.