Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-What's the firm's current contribution margin?
A)$15
B)$18
C)$3
D)$4

Question

​Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-​What's the firm's current contribution margin?
A)​$15
B)$18
C)$3
D)​$4

Quizplus · Accepted Answer

Contribution margin is calculated as the selling price per unit minus the variable cost per unit. Since the fixed cost is not part of the calculation, it is irrelevant to determine the contribution margin. 
The variable cost per unit is the sum of the current marginal cost and any additional variable cost that may result from the investment in new machinery. As this information is not provided, we can assume that the variable cost remains the same as the current marginal cost, which is $15 per unit.
Contribution margin = Selling price per unit - Variable cost per unit 
= $18 - $15 
= $3.

​Use the Following Setup for Question

Use the Following Setup for Question