Question

Bluegill Company sells 14,000 units at $240 per unit. Fixed costs are $168,000, and operating income is $1,176,000. Determine the following:

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

Answer 1

a. Variable cost per unit:

= (Sales - Fixed costs - Operating income) / number of units sold

= ((14,000 units * 240) - 168,000 - 1,176,000) / 14,000

= 2,016,000 / 14,000

= $144 per unit

b. Unit contribution margin:

= Selling price - Variable cost per unit

= 240 - 144

= $96

c. Contribution margin ratio:

= Unit contribution margin / Selling price

= 96 / 240

= 40%