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30 August, 03:36

Assuming no direct factory overhead costs (i. e., inventory carry costs) and $3 million dollars in combined promotion and sales budget, the Creak product manager wishes to achieve a product contribution margin of 35%. Given their product currently is priced at $35.00, what would they need to limit the material and labor costs to?

a. $24.50

b. $22.75

c. $23.00

d. $21.00

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Answers (1)
  1. 30 August, 04:01
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    b. $22.75

    Explanation:

    We know that

    Contribution margin per unit = Sales price per unit - variable cost per unit

    Since the selling price is $35

    And, the contribution margin is 35%

    Therefore, the contribution margin per unit would be

    = $35 * 35 per cent

    = $12.25

    Now add these figures in the formula above.

    Hence, the value would be equal to

    = $35 - $12.25

    = $22.75

    The inventory and labor costs are included in the variable cost
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