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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 6.00Directlabor 6.00Direct labor 3.50Variable manufacturing overhead 1.50Fixedmanufacturingoverhead 1.50Fixed manufacturing overhead 4.00Fixed selling expense 3.00Fixedadministrativeexpense 3.00Fixed administrative expense 2.00Sales commissions 1.00Variableadministrativeexpense 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.)

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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: 6.00Directlabor:6.00 Direct labor: 3.50 Variable manufacturing overhead: 1.50Salescommissions:1.50 Sales commissions: 1.00 Variable administrative expense: $0.50

Total variable cost per unit = 6.00+6.00 + 3.50 + 1.50+1.50 + 1.00 + 0.50=0.50 = 12.50

The selling price per unit is $22.00.

So, the contribution margin per unit = Selling price per unit - Variable cost per unit = 22.0022.00 - 12.50 = $9.50

Therefore, the contribution margin per unit is $9.50.

This problem has been solved

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