Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Average Cost per UnitDirect materials $ 6.00Direct labor $ 3.50Variable manufacturing overhead $ 1.50Fixed manufacturing overhead $ 4.00Fixed selling expense $ 3.00Fixed administrative expense $ 2.00Sales commissions $ 1.00Variable administrative expense $ 0.5013. If the selling price is $22 per unit, what is the contribution margin per unit? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Question
Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Average Cost per UnitDirect materials 3.50Variable manufacturing overhead 4.00Fixed selling expense 2.00Sales commissions 0.5013. If the selling price is $22 per unit, what is the contribution margin per unit? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Solution
The contribution margin per unit is calculated by subtracting the variable costs from the selling price.
The variable costs per unit in this case are:
Direct materials: 3.50 Variable manufacturing overhead: 1.00 Variable administrative expense: $0.50
Total variable cost per unit = 3.50 + 1.00 + 12.50
The selling price per unit is $22.00.
So, the contribution margin per unit = Selling price per unit - Variable cost per unit = 12.50 = $9.50
Therefore, the contribution margin per unit is $9.50.
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