Spartan Systems reported total sales of $300,000, at a price of $20 and per unit variable expenses of $12, for the sales of their single product. What is the amount of contribution margin if sales volume increases by 30%?

Question

Spartan Systems reported total sales of $300,000, at a price of $20 and per unit variable expenses of $12, for the sales of their single product.  What is the amount of contribution margin if sales volume increases by 30%?

Quizplus · Accepted Answer

Contribution margin per unit can be calculated as:

Contribution Margin = Price per unit - Variable expenses per unit
Contribution Margin = $20 - $12
Contribution Margin = $8

Total contribution margin can be calculated as:

Total Contribution Margin = Contribution Margin per unit x Sales volume
Total Contribution Margin = $8 x 15,000
Total Contribution Margin = $120,000

If sales volume increases by 30%, new sales volume would be:

New Sales Volume = Total Sales Volume + (Total Sales Volume x % Increase) 
New Sales Volume = 15,000 + (15,000 x 0.3) 
New Sales Volume = 19,500

New total contribution margin can be calculated as:

New Total Contribution Margin = Contribution Margin per unit x New Sales volume 
New Total Contribution Margin = $8 x 19,500 
New Total Contribution Margin = $156,000

Therefore, the amount of contribution margin if sales volume increases by 30% is $156,000. The correct choice is C.

Spartan Systems Reported Total Sales of $300,000, at a Price