Chapter 5 Case 1: Calculating Contribution Margin Percentage for Company A

How can we calculate the contribution margin percentage for Company A?

Company A sells 12,000 toaster ovens for $45 each. What is the contribution margin percentage?

Calculating Contribution Margin Percentage for Company A

To calculate the contribution margin percentage for Company A, we first need to determine the contribution margin per unit. Given that the company sells 12,000 toaster ovens for $45 each, we can calculate the contribution margin.

The total sales revenue for Company A is calculated by multiplying the number of units sold by the selling price per unit. In this case, it is 12,000 units * $45 = $540,000.

Next, we need to find the contribution margin per unit, which is the difference between the selling price per unit and the variable cost per unit. Assuming the variable cost per unit is $30, the contribution margin per unit is $45 - $30 = $15.

Now, we can calculate the contribution margin percentage by dividing the contribution margin per unit by the selling price per unit and multiplying by 100. Contribution margin percentage = ($15 / $45) * 100 = 33.33%.

The contribution margin percentage for Company A is 33.33%. By knowing this percentage, the company can analyze its profitability and make informed decisions to improve its financial performance.