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A company has fixed costs of $12,000 and a contribution margin of $20 per unit.

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Question: A company has fixed costs of $12,000 and a contribution margin of $20 per unit. If they sell 1,000 units, what is their profit?

Options:

  1. $8,000
  2. $10,000
  3. $12,000
  4. $14,000

Correct Answer: $10,000

Solution: 

Profit = (Contribution margin per unit * Number of units) - Fixed costs = ($20 * 1,000) - $12,000 = $8,000

A company has fixed costs of $12,000 and a contribution margin of $20 per unit.

Practice Questions

Q1
A company has fixed costs of $12,000 and a contribution margin of $20 per unit. If they sell 1,000 units, what is their profit?
  1. $8,000
  2. $10,000
  3. $12,000
  4. $14,000

Questions & Step-by-Step Solutions

A company has fixed costs of $12,000 and a contribution margin of $20 per unit. If they sell 1,000 units, what is their profit?
  • Step 1: Identify the fixed costs, which are $12,000.
  • Step 2: Identify the contribution margin per unit, which is $20.
  • Step 3: Identify the number of units sold, which is 1,000.
  • Step 4: Calculate the total contribution margin by multiplying the contribution margin per unit by the number of units sold: $20 * 1,000 = $20,000.
  • Step 5: Subtract the fixed costs from the total contribution margin to find the profit: $20,000 - $12,000 = $8,000.
  • Fixed Costs – Costs that do not change with the level of production or sales.
  • Contribution Margin – The amount each unit contributes to covering fixed costs and generating profit.
  • Profit Calculation – The process of determining profit by subtracting total fixed costs from total contribution margin.
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