Question

Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 million dollars in combined promotion and sales budget, the Dim product manager wishes to achieve a product contribution margin of 35%. Given their product currently is priced at $35.00, what would they need to limit the material and labor costs to?a. $23.00b. $24.50c. $21.00d. $22.75

Answer 1

d. $22.75

Step-by-step explanation:

We know that

Contribution margin per unit = Selling price per unit - Variable expense per unit

where,

Selling price per unit is $35

And, the contribution margin is 35%

So, the Contribution margin per unit would be

= Selling price per unit × contribution margin

= $35 × 35%

= $12.25

Now after finding out the contribution margin per unit, the variable cost per unit would be

= $35 - $12.25

= $22.75

And, the direct material and labor cost is a variable cost