Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 20

Felton Paper produces paper for textbooks. Felton plans to produce 500,000 cases of paper next quarter to sell at a price of $100 per case. Each case costs the company $80 to produce. What is the total contribution margin for next quarter?

Step 1 of 2

The contribution margin is the difference between the entire revenue and total variable cost. The contribution margin per unit is the difference between the selling price per unit and variable cost per unit. It is a pointer that shows the changes in operating financial gain with alteration in the number of units. The contribution margin per unit is calculated as follows

The total contribution margin is calculated by multiplying contribution margin per unit by the total number of units. The total contribution margin is calculated as follows:

Where

p = Selling price per unit

v = Variable cost per unit

Q = number of units sold