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If a company sells 500 units at a selling price of $100 and has variable costs o

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Question: 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?

Options:

  1. $20,000
  2. $25,000
  3. $30,000
  4. $35,000

Correct Answer: $25,000

Solution: 

Contribution per unit = Selling Price - Variable Cost = $100 - $60 = $40. Total Contribution = Contribution per unit * Number of units = $40 * 500 = $20,000.

If a company sells 500 units at a selling price of $100 and has variable costs o

Practice Questions

Q1
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?
  1. $20,000
  2. $25,000
  3. $30,000
  4. $35,000

Questions & Step-by-Step Solutions

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?
  • Step 1: Identify the selling price per unit, which is $100.
  • Step 2: Identify the variable cost per unit, which is $60.
  • Step 3: Calculate the contribution per unit by subtracting the variable cost from the selling price: $100 - $60 = $40.
  • Step 4: Identify the total number of units sold, which is 500.
  • Step 5: Calculate the total contribution by multiplying the contribution per unit by the number of units sold: $40 * 500 = $20,000.
  • Contribution Margin – The contribution margin is the difference between the selling price per unit and the variable cost per unit, indicating how much each unit contributes to covering fixed costs and generating profit.
  • Total Contribution – Total contribution is calculated by multiplying the contribution margin per unit by the total number of units sold, representing the overall contribution to profit from sales.
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