Final Answer:
Puerto Rico Inc.'s total unit costs range from $30 to $55.50 per unit, and total sales revenue varies based on the sales range. The Income Statement, prepared using the contribution margin approach, shows the company's profitability at different sales levels.
Step-by-step explanation:
Puerto Rico Inc.'s total unit costs consist of the variable cost per unit and the fixed costs. The variable cost per unit, calculated as the retail price minus the variable cost, ranges from $35 to $55.50. At the lowest sales range, the fixed costs contribute significantly to the total unit cost, resulting in a higher cost per unit. As sales increase, the fixed costs are spread over a larger number of units, reducing the impact on the unit cost.
The total sales revenue is determined by multiplying the number of units sold by the retail price. The contribution margin, which is the difference between the retail price and the variable cost per unit, represents the portion of each sale that contributes to covering fixed costs and generating profit. As sales increase, the contribution margin allows for higher coverage of fixed costs and increased profitability.
In the Income Statement prepared using the contribution margin approach, total sales revenue is subtracted by the total variable costs to obtain the contribution margin. From this, fixed costs are deducted to determine the net profit. This approach provides a clearer insight into how changes in sales affect the company's profitability and allows for strategic decision-making to optimize performance across different sales ranges.