Question

In: Accounting

Calculate the contribution margin per unit and the total contribution margin

Gooey Relish has the capacity to produce either 54,000 corncob pipes or 25,200 cornhusk dolls per year. The pipes cost $3.60 each to produce and sell for $9.00 each. The dolls sell for $12.00 each and cost $4.80 to produce.

Required
Assuming that gooey relish can sell all it produces of either product, should it produce the corncob pipes or cornhusk dolls? Sho computations to support your answer.

Solutions

Expert Solution

sales price minus Variable costs= contribution margin

pipes: 9.00 - 3.60 = 5.40

dolls: 12.00 - 4.80 = 7.20

CM x Units produced and sold = Total CM

Pipes: 5.40 x 54,000 = 291,600

dolls: 7.20 x 25,200 = 181,440

It should produce the corncob pipes.

 

 

It should produce the corncob pipes.

Christopher Mann answered 3 years ago
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