Question

Starship Company sells 55.000 units at $14 per unit. Fixed costs are $67,000 and income from operations is $263,000. Please show your calculations in determining the following:

(a) Variable cost per unit
(b) Unit contribution margin
(c) Contribution margin ratio

Answer 1

The unit contribution margin for Starship Company is $6 per unit, and the contribution margin ratio is 42.86%.

Step-by-step explanation:

The question involves calculating the unit contribution margin and contribution margin ratio for Starship Company. The unit contribution margin is the selling price per unit minus the variable costs per unit. To find this figure, we must solve for variable costs since the fixed costs and income from operations are given.

With the provided data, we know that sales revenue (55,000 units at $14 per unit) is $770,000 ($55,000 x $14). The income from operations is given as $263,000. We can deduce the total variable costs by subtracting income from operations from total sales revenue, then subtracting fixed costs ($770,000 - $263,000 - $67,000), which equals $440,000 in total variable costs. To find the variable cost per unit, we divide the total variable costs by the number of units sold ($440,000 / 55,000 units), which equals $8 per unit. The unit contribution margin is then ($14 - $8), which is $6 per unit.

To calculate the contribution margin ratio, we divide the unit contribution margin by the selling price per unit ($6 / $14) which simplifies to approximately 0.4286 or 42.86% when expressed as a percentage.