Question

Elsea Company, which produces and sells a small digital clock, bases its pricing strategy on a 25 percent markup on total cost. Based on annual production costs for 25,000 units of product, computations for the sales price per clock follow. Unit-level costs $ 190,000 Fixed costs 50,000 Total cost (a) 240,000 Markup (a × 0.25) 60,000 Total sales (b) $ 300,000 Sales price per unit (b ÷ 25,000) $ 12 Required a-1. Elsea has excess capacity and receives a special order for 8,000 clocks for $10 each. Calculate the contribution margin per unit. (Round your answer to 2 decimal places.)

Answer 1

Contribution = Selling price - Variable cost per unit

= $12 - $7.6

= $4.40

Variable cost per unit = $190,000/25,000 units

= $7.60

Step-by-step explanation:

In this case, we need to calculate contribution per unit by deducting variable cost per unit from selling price. Variable cost per unit is equal to total variable cost divided by units of production.