Question

Assume the following information for a merchandising company:

Number of units sold 20,000
Selling price per unit $ 30
Variable selling expense per unit $ 3.7
Variable administrative expense per unit $ 2.7
Fixed administrative expenses $ 50,000
Beginning merchandise inventory $ 24,000
Ending merchandise inventory $ 19,000
Merchandise purchases $ 340,000

What is the contribution margin?

Answer 1

The contribution margin cannot be determined with the information given, as sales revenue and variable costs are required but not provided. An example using reference data shows that the contribution margin for a computer company is the selling price minus the marginal cost of each unit, minus the fixed costs.

Step-by-step explanation:

To calculate the contribution margin, we need information about a company's sales revenue, variable costs, and fixed costs. The contribution margin represents the amount remaining from sales revenue after variable costs have been deducted; it contributes towards covering fixed costs and generating profit. The question doesn't provide enough data about sales revenue and variable costs. Therefore, we cannot determine the contribution margin from the information given.

However, to give an example using the reference information, if a computer company has fixed costs of $250 and sells the first computer at a price higher than $700 (its marginal cost), the contribution margin of that first computer would be the selling price minus $700. This pattern continues for subsequent computers, where the contribution margin is the selling price minus the respective marginal cost. The total contribution margin is the sum of individual margins from all units less the fixed cost of $250.