Asked by Abbie Mulbarger on Apr 28, 2024
Verified
Perfect Stampers makes and sells aftermarket hub caps. The variable cost for each hub cap is $4.75, and the hub cap sells for $9.95. Perfect Stampers has fixed costs per month of $3,120. Compute the contribution margin per unit and the break-even sales in units and in dollars for the month.
Contribution Margin
The amount remaining from sales revenue after variable expenses have been deducted, indicating how much contributes to covering the fixed costs.
Break-even Sales
The amount of revenue needed to cover both fixed and variable costs, resulting in no profit or loss.
Variable Cost
Costs that change in proportion to the level of goods or services produced, such as materials and labor directly involved in production.
- Compute and elucidate fixed and variable expenses in the context of manufacturing and sales.
- Determine the threshold for breaking even in both quantitative units and monetary figures, recognizing its importance for planning in business contexts.
- Determine and explain the implications of the contribution margin and its corresponding ratio.
Verified Answer
Break-even sales in units: $3,120 ÷ $5.20 = 600 units
Break-even sales in dollars: $9.95 selling price × 600 units = $5,970
Learning Objectives
- Compute and elucidate fixed and variable expenses in the context of manufacturing and sales.
- Determine the threshold for breaking even in both quantitative units and monetary figures, recognizing its importance for planning in business contexts.
- Determine and explain the implications of the contribution margin and its corresponding ratio.
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