Asked by Ericka Pearce on Apr 30, 2024
Verified
Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio (rounded to the nearest whole percent) and the unit contribution margin are
A) 47% and $11 per unit
B) 53% and $7 per unit
C) 47% and $8 per unit
D) 52% and $11 per unit
Contribution Margin Ratio
A financial metric that shows how much of a company's revenue is available after variable costs to cover fixed costs and generate profit.
Unit Contribution Margin
The difference between the selling price per unit and the variable cost per unit, showing how much each unit contributes to covering fixed costs and generating profit.
Fixed Costs
Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.
- Compute the contribution margin and realize its role in the context of CVP analysis.
- Use the contribution margin ratio framework for assessing the performance metrics of a business.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
D
Explanation :
Contribution margin can be calculated as follows:
Contribution margin = Sales - Variable costs
Contribution margin = (25,000 units × $21 per unit) - (25,000 units × $10 per unit)
Contribution margin = $525,000 - $250,000
Contribution margin = $275,000
The contribution margin ratio can be calculated as follows:
Contribution margin ratio = Contribution margin ÷ Sales
Contribution margin ratio = $275,000 ÷ $525,000
Contribution margin ratio = 0.5238 or 52% (rounded to the nearest whole percent)
The unit contribution margin can be calculated as follows:
Unit contribution margin = Contribution margin ÷ Number of units
Unit contribution margin = $275,000 ÷ 25,000 units
Unit contribution margin = $11 per unit
Therefore, the correct answer is D, with a contribution margin ratio of 52% and a unit contribution margin of $11 per unit.
Contribution margin = Sales - Variable costs
Contribution margin = (25,000 units × $21 per unit) - (25,000 units × $10 per unit)
Contribution margin = $525,000 - $250,000
Contribution margin = $275,000
The contribution margin ratio can be calculated as follows:
Contribution margin ratio = Contribution margin ÷ Sales
Contribution margin ratio = $275,000 ÷ $525,000
Contribution margin ratio = 0.5238 or 52% (rounded to the nearest whole percent)
The unit contribution margin can be calculated as follows:
Unit contribution margin = Contribution margin ÷ Number of units
Unit contribution margin = $275,000 ÷ 25,000 units
Unit contribution margin = $11 per unit
Therefore, the correct answer is D, with a contribution margin ratio of 52% and a unit contribution margin of $11 per unit.
Learning Objectives
- Compute the contribution margin and realize its role in the context of CVP analysis.
- Use the contribution margin ratio framework for assessing the performance metrics of a business.