Question

Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:

Direct materials$5.30
Direct labor$2.80
Variable manufacturing overhead$1.40
Fixed manufacturing overhead$4.00
Fixed selling expense$2.30
Fixed administrative expense$2.20
Sales commissions$1.20
Variable administrative expense$0.45

If the selling price is $21.30 per unit, what is the contribution margin per unit?

Answer 1

The contribution margin per unit for Martinez Company is $10.15, which is the selling price per unit ($21.30) minus the total variable costs per unit ($11.15).

Step-by-step explanation:

To calculate the contribution margin per unit, we need to subtract all variable costs from the selling price per unit. In the case of Martinez Company, when producing and selling 10,000 units, the variable costs include direct materials ($5.30), direct labor ($2.80), variable manufacturing overhead ($1.40), sales commissions ($1.20), and variable administrative expense ($0.45). Therefore, the total variable cost per unit is the sum of these costs.

The selling price per unit is $21.30. The total variable cost per unit is $5.30 + $2.80 + $1.40 + $1.20 + $0.45 = $11.15. Subtracting the total variable cost from the selling price, the contribution margin per unit is $21.30 - $11.15 = $10.15.