Question

Lanning Company sells 160,000 units at $45 per unit. Variable costs are $27 per unit, and fixed costs are $975,000. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Sales= 160,000 units

Selling price= $45 per unit.

Variable costs are $27 per unit

Fixed costs are $975,000.

First, we need to calculate the contribution margin ratio using the following formula:

contribution margin ratio= (selling price - unitary variable cost) / selling price

contribution margin ratio= (45 - 27) / 45

contribution margin ratio= 0.4

Now, we can calculate the contribution margin per unit:

Contribution margin= selling price - unitary variable cost

Contribution margin= 45 - 27

Contribution margin= 18

Finally, the net operating income:

Net income= units sold*contribution margin - fixed costs

Net income= 160,000*18 - 975,000

Net income= $1,905,000