Paco’s Bikes sells 120 bicycles each month for
160, and the fixed costs total $4,800 per month. What is the contribution margin per unit?
The Correct Answer and Explanation is:
To calculate the contribution margin per unit, we need to use the following formula:Contribution Margin per Unit=Selling Price per Unit−Variable Cost per Unit\text{Contribution Margin per Unit} = \text{Selling Price per Unit} – \text{Variable Cost per Unit}Contribution Margin per Unit=Selling Price per Unit−Variable Cost per Unit
In this case:
- The selling price per unit is given as $160.
- The variable cost per unit is not provided directly, but we can calculate it by finding the total variable costs for all units sold.
Step 1: Calculate Total Revenue
The total revenue is the selling price per unit multiplied by the number of units sold:Total Revenue=Selling Price per Unit×Units Sold\text{Total Revenue} = \text{Selling Price per Unit} \times \text{Units Sold}Total Revenue=Selling Price per Unit×Units SoldTotal Revenue=160×120=19,200\text{Total Revenue} = 160 \times 120 = 19,200Total Revenue=160×120=19,200
Step 2: Calculate Total Costs
The total costs consist of both fixed costs and variable costs. We are given the fixed costs:
- Fixed Costs = $4,800 per month
The variable costs can be calculated as the difference between total costs and fixed costs. To do this, we need the total costs, which are represented by the total revenue minus the contribution margin.
However, we can solve this by assuming that the remaining costs are the variable costs and that the contribution margin per unit is what is left after covering the variable costs.
Since the problem does not provide all of the details needed to precisely break down costs into variable and fixed components, assuming a standard structure, we can typically approximate the contribution margin as a percentage of the revenue, taking into account that fixed costs remain constant while the variable costs fluctuate with the number of units sold.
In short, the contribution margin per unit can be calculated accurately if we know or estimate the total variable cost per unit, but in this case, you may need additional details about variable costs to get a precise figure.
