   Chapter 21, Problem 21.2APE

Chapter
Section
Textbook Problem

Contribution marginLanning Company sells 160,000 units at $45 per unit. Variable costs are$27 per unit, and fixed costs are $975,000. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations. (a) To determine Contribution Margin ratio: It is a ratio that measures the contribution margin generated by the company from the sales to make it avialable for paying the fixed cost and generate a profit. It is expressed as percentage of margin available from each dollar sales to pay fixed expenses and to provide profit. It is also called as profit-volume ratio. The formula to calculate the contribution margin ratio is as follows: ContributionMarginRatio =ContributionMarginSales×100 To determine: contribution margin ratio. Explanation Determine the contribution margin ratio. Selling price per unit =$45 per unit

Variable cost per unit =\$27 per unit

ContributionMarginRatio =ContributionMarginSales×100=Sellingpriceperunit

(b)

To determine
the unit contribution margin.

(c)

To determine
the income from operations.

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