Maker Sun Chairs is trying to determine the optimal price to charge for its galvanized deck chairs.The company has total fixed costs of $120,000 and the deck chairs have a unit variable cost of $27.00 per unit.Maker Sun Chairs has determined that the following relationships exist between price and demand: $$\begin{array} { c c }
\text { Unit Price } & \text { Unit Dem and } \
\$ 45 & 7,200 \
\$ 44 & 7,800 \
\$ 43 & 8,400 \
\$ 42 & 8,800
\end{array}$$ How much is the contribution margin at a price of $45?
A)$324,000
B)$129,600
C)$12,600
D)$9,600

Question

Maker Sun Chairs is trying to determine the optimal price to charge for its galvanized deck chairs.The company has total fixed costs of $120,000 and the deck chairs have a unit variable cost of $27.00 per unit.Maker Sun Chairs has determined that the following relationships exist between price and demand: $$\begin{array} { c c } 
\text { Unit Price } & \text { Unit Dem and } \
\$ 45 & 7,200 \
\$ 44 & 7,800 \
\$ 43 & 8,400 \
\$ 42 & 8,800
\end{array}$$ How much is the contribution margin at a price of $45?
A)$324,000
B)$129,600
C)$12,600
D)$9,600

Quizplus · Accepted Answer

The contribution margin is calculated as (Price - Variable Cost) * Quantity. At a price of $45, the contribution margin is ($45 - $27) * 7,200 = $18 * 7,200 = $129,600.