Question

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Orion, Inc. sold 17,000 units last year for $50 each. Variable costs per unit were $20...

Orion, Inc. sold 17,000 units last year for $50 each. Variable costs per unit were $20 for direct materials, $15 for direct labor, and $10 for variable overhead. Fixed costs were $10,000 in manufacturing overhead and $50,000 in nonmanufacturing costs.
a. What is the total contribution margin?
b. What is the unit contribution margin?
c. What is the contribution margin ratio?
d. If sales increase by 5,000 units, by how much will profits increase?

Expert Solution

(a)-Total Contribution Margin

Total Contribution Margin = Number of units sold x Contribution Margin per unit

Contribution Margin per unit = Selling Price per unit – Variable cost per unit

= $50 – [$20 + $15 + $10]

= $50 - $45

= $5 per unit

Therefore, Total Contribution Margin = Number of units sold x Contribution Margin per unit

= 17,000 Units x $5 per unit

= $85,000

“Total Contribution Margin = $85,000”

(b)- Unit Contribution Margin

Unit Contribution Margin = Selling Price per unit – Variable cost per unit

= $50 – [$20 + $15 + $10]

= $50 - $45

= $5 per unit

“Unit Contribution Margin = $5 per unit”

(c)-Contribution Margin Ratio

Contribution Margin Ratio = (Contribution Margin per unit / Selling Price per unit) x 100

= ($5 / $50) x 100

= 10%

“Contribution Margin Ratio = 10%”

(d)- Increase in Profit If the sales increase by 5,000 units

Increase in Profit = Increase in number of unit x Contribution margin per unit

= 5,000 Units x $5 per unit

= $25,000

“Increase in Profits = $25,000”

ekkarill92 answered 1 year ago

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