A company with monthly fixed costs of $170,000 expects to earn monthly operating income of $25,000 by selling 6,500 units per month. What is the company's expected unit contribution margin?

Question

Quizplus · Accepted Answer

To calculate the unit contribution margin, we need to first calculate the total contribution margin:

Total contribution margin = Sales revenue - Variable costs

We know that the company is selling 6,500 units per month and has a monthly operating income of $25,000.

Operating income = Sales revenue - Variable costs - Fixed costs

$25,000 = (Unit price x Number of units sold) - (Variable cost per unit x Number of units sold) - $170,000

$25,000 = (Unit contribution margin x Number of units sold) - $170,000

$195,000 = (Unit contribution margin x 6,500)

Unit contribution margin = $195,000 / 6,500 = $30

Therefore, the expected unit contribution margin is $30. The answer is A.

A Company with Monthly Fixed Costs of $170,000 Expects to Earn