Question

Calculating Contribution Margin, Contribution Margin Ratio, Margin of Safety [LO 6-2, 6-3] Last month, Laredo Company sold 550 units for $75 each. During the month, fixed costs were $5,577 and variable costs were $42 per unit. Required: Determine the unit contribution margin and contribution margin ratio.

Answer 1

The unit contribution margin is $33 and the contribution margin ratio is 44%.

Step-by-step explanation:

To calculate the unit contribution margin, we subtract the variable costs per unit from the selling price per unit. In this case, the selling price per unit is $75 and the variable costs per unit is $42. Therefore, the unit contribution margin is $75 - $42 = $33.

To calculate the contribution margin ratio, we divide the unit contribution margin by the selling price per unit and multiply by 100. In this case, the unit contribution margin is $33 and the selling price per unit is $75. Therefore, the contribution margin ratio is ($33 / $75) * 100 = 44%.