Asked by yedek hesap on Sep 23, 2024
Verified
What's the firm's current contribution margin?
A) $15
B) $18
C) $3
D) $4
Contribution Margin
The amount by which the sale of a product or service exceeds variable costs, indicating how much it contributes to covering fixed costs.
Fixed Costs
Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.
Marginal Costs
The additional cost incurred by producing one more unit of a good or service.
- Determine the contribution margin and comprehend its importance in setting prices and achieving profitability.
Verified Answer
GA
Gagandeep Anttal4 days ago
Final Answer :
C
Explanation :
Contribution margin is calculated as the selling price per unit minus the variable cost per unit. Since the fixed cost is not part of the calculation, it is irrelevant to determine the contribution margin.
The variable cost per unit is the sum of the current marginal cost and any additional variable cost that may result from the investment in new machinery. As this information is not provided, we can assume that the variable cost remains the same as the current marginal cost, which is $15 per unit.
Contribution margin = Selling price per unit - Variable cost per unit
= $18 - $15
= $3.
The variable cost per unit is the sum of the current marginal cost and any additional variable cost that may result from the investment in new machinery. As this information is not provided, we can assume that the variable cost remains the same as the current marginal cost, which is $15 per unit.
Contribution margin = Selling price per unit - Variable cost per unit
= $18 - $15
= $3.
Learning Objectives
- Determine the contribution margin and comprehend its importance in setting prices and achieving profitability.