Q. If a company sells 500 units at a selling price of $100 and has variable costs of $60 per unit, what is the total contribution?
A.
$20,000
B.
$25,000
C.
$30,000
D.
$35,000
Solution
Contribution per unit = Selling Price - Variable Cost = $100 - $60 = $40. Total Contribution = Contribution per unit * Number of units = $40 * 500 = $20,000.
Q. If a company wants to achieve a profit of $10,000 and has fixed costs of $4,000, how much contribution margin is needed if the contribution margin per unit is $25?
A.
$400
B.
$600
C.
$800
D.
$1,000
Solution
Required contribution margin = Fixed costs + Desired profit = $4,000 + $10,000 = $14,000. Number of units = $14,000 / $25 = 560 units.
Q. If the selling price per unit is $100 and the variable cost per unit is $60, what is the margin of safety in dollars if the break-even sales are $40,000?
A.
$20,000
B.
$30,000
C.
$10,000
D.
$15,000
Solution
Margin of safety = Actual sales - Break-even sales. Actual sales = Selling price per unit * Number of units sold. If 1,000 units are sold, Actual sales = $100 * 1,000 = $100,000. Margin of safety = $100,000 - $40,000 = $60,000.
Q. What is the total contribution margin if a company sells 500 units at a selling price of $80 per unit and a variable cost of $50 per unit?
A.
$15,000
B.
$20,000
C.
$25,000
D.
$30,000
Solution
Contribution margin per unit = Selling price - Variable cost = $80 - $50 = $30. Total contribution margin = Contribution margin per unit * Number of units sold = $30 * 500 = $15,000.
