Question

PA1.

LO 3.1A company sells small motors as a component part to automobiles. The Model 101 motor sells for $850 and has per-unit variable costs of $400 associated with its production. The company has fixed expenses of $90,000 per month. In August, the company sold 425 of the Model 101 motors.

Calculate the contribution margin per unit for the Model 101.
Calculate the contribution margin ratio of the Model 101.
Prepare a contribution margin income statement for the month of August.

Answer 1

Contribution margin per unit = $450

Contribution margin ratio = 52.94%

Step-by-step explanation:

The calculations are given below:

Contribution margin per unit = Selling price per unit - per unit variable cost

= $850 - $400

= $450

Contribution margin ratio would be

= (Contribution margin per unit) ÷ (Selling price per unit) × 100

= ($450) ÷ ($850) × 100

= 52.94%

And, the contribution margin income statement for August month is presented below:

Contribution margin income statement

For the August month

Sales (425 motors × $850) $361,250

Less: Variable cost (425 motors × $400) ($170,000)

Contribution margin $191,250

Less: Fixed expenses per month ($90,000)

Net income $101,250