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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Contribution margin

Lanning 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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