Yamhill Marketing purchases novelty gift items from a wholesaler at a cost of $2 each and sells them at retail for $5 each. Yamhill's monthly expenses are as follows.
Rent $375
Sales wages/commissions $1000 month + 10% of sales
Utilities $115 per month
Depreciation on equipment $200 per month
If 1000 units are sold during January what is Yamhill's total contribution margin for the month?

Question

Quizplus · Accepted Answer

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

Selling price per unit - Cost per unit = Contribution margin per unit
$5 - $2 = $3

Next, we can calculate the total revenue generated from the sale of 1000 units:

1000 units x $5 per unit = $5000

The total variable expenses are the sales wages/commissions, which are calculated as:

$1000 + (10% x $5000) = $1500

Adding up all of the fixed expenses gives us:

$375 + $115 + $200 = $690

Finally, we can calculate the total contribution margin as:

(Total revenue - Total variable expenses) - Total fixed expenses
($5000 - $1500) - $690 = $2810

Therefore, the correct answer is C) $2500.

Yamhill Marketing Purchases Novelty Gift Items from a Wholesaler at a Cost