If a company sells 3,000 units at a selling price of $20 per unit and incurs tot
Practice Questions
Q1
If a company sells 3,000 units at a selling price of $20 per unit and incurs total variable costs of $30,000, what is the total contribution?
$30,000
$60,000
$90,000
$20,000
Questions & Step-by-Step Solutions
If a company sells 3,000 units at a selling price of $20 per unit and incurs total variable costs of $30,000, what is the total contribution?
Step 1: Identify the selling price per unit, which is $20.
Step 2: Identify the total variable costs, which is $30,000.
Step 3: Calculate the variable cost per unit by dividing total variable costs by the number of units sold: $30,000 / 3,000 units = $10 per unit.
Step 4: Calculate the contribution per unit by subtracting the variable cost per unit from the selling price per unit: $20 - $10 = $10.
Step 5: Calculate the total contribution by multiplying the contribution per unit by the number of units sold: $10 x 3,000 units = $30,000.
Contribution Margin – The contribution margin is the difference between the selling price per unit and the variable cost per unit, multiplied by the number of units sold.
Variable Costs – Understanding how to calculate total variable costs and their impact on contribution margin is crucial.
