Harp Widgets determined each deluxe widget it produces has a unit variable cost of $15.00, with total fixed costs of $600,000 for the period.Harp expects to sell 60,000 deluxe widgets and has applied a markup percentage of 35%.What contribution margin will Harp earn from the sale of each deluxe widget?
A)$33.75
B)$8.75
C)$18.75
D)$25.75

Question

Quizplus · Accepted Answer

To calculate the contribution margin, we need to subtract the unit variable cost from the selling price (which includes the markup).

Selling price = unit variable cost + markup
Selling price = $15.00 + 35% of $15.00
Selling price = $15.00 + $5.25 
Selling price = $20.25

Contribution margin = selling price - unit variable cost
Contribution margin = $20.25 - $15.00
Contribution margin = $5.25

Therefore, Harp will earn a contribution margin of $5.25 from the sale of each deluxe widget.

Harp Widgets Determined Each Deluxe Widget It Produces Has a Unit