Question

A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. What is the total contribution margin?

1) $125,000
2) $150,000
3) $175,000
4) $200,000

Answer 1

The total contribution margin for the firm, based on the sale of 25,000 units at $11 per unit with a variable cost of $6 per unit and total fixed costs of $70,000, is $125,000.

Step-by-step explanation:

The total contribution margin is calculated by finding the difference between the selling price per unit and the variable cost per unit, multiplied by the number of units sold. So, we take the selling price of $11 and subtract the variable cost of $6, which gives us a contribution margin of $5 per unit ($11 - $6 = $5). Then, we multiply this by the total units sold, which is 25,000 units.

Contribution margin per unit = Selling price per unit - Variable cost per unit
Total contribution margin = Contribution margin per unit x Number of units sold

Using the formula:

Total contribution margin = $5 x 25,000 units
Total contribution margin = $125,000

Therefore, the total contribution margin for the firm is $125,000.