What is the contribution margin for Division A if it transfers 25,000 units to Division B at $6.75 per unit?
A)$250,000
B)$650,000
C)$675,000
D)$698,750

Question

Quizplus · Accepted Answer

To determine the contribution margin for Division A when transferring 25,000 units to Division B at $6.75 per unit, we need to calculate the variable cost per unit and subtract it from the price per unit. Let's assume the variable cost per unit is $4.50. 
Contribution margin per unit = selling price per unit - variable cost per unit
Contribution margin per unit = $6.75 - $4.50
Contribution margin per unit = $2.25

Now we can calculate the total contribution margin for 25,000 units:
Contribution margin for Division A = contribution margin per unit x number of units transferred
Contribution margin for Division A = $2.25 x 25,000
Contribution margin for Division A = $56,250

However, we need to remember that Division A is transferring 25,000 units to Division B at a price of $6.75 per unit. Therefore, Division A will also receive revenue of:
Revenue from Division B = transfer price per unit x number of units transferred
Revenue from Division B = $6.75 x 25,000
Revenue from Division B = $168,750

To find the total contribution margin, we need to add the contribution margin for Division A and the revenue from Division B:
Total contribution margin = Contribution margin for Division A + Revenue from Division B
Total contribution margin = $56,250 + $168,750
Total contribution margin = $225,000

Therefore, the contribution margin for Division A is $225,000. None of the answer choices match this amount. However, we need to remember that the question asks for the contribution margin for Division A only, not the total contribution margin. Therefore, we need to subtract the revenue from Division B:
Contribution margin for Division A = Total contribution margin - Revenue from Division B
Contribution margin for Division A = $225,000 - $168,750
Contribution margin for Division A = $56,250

The answer is D, $56,250.

What Is the Contribution Margin for Division a If It