A proposed project has fixed costs of $39,480, depreciation expense of $8,724, and a sales quantity of 1,330 units. The total variable costs are $5,607. What is the contribution margin per unit if the projected level of sales is the accounting break-even point?
A) $37.81
B) $34.63
C) $36.24
D) $35.16
E) $38.13

Question

Quizplus · Accepted Answer

The accounting break-even point is when the total revenue equals the total cost, which includes fixed costs, depreciation, and variable costs. We can calculate the contribution margin per unit using the following formula:

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

To find the selling price per unit, we need to know the total revenue at the accounting break-even point. We can calculate this by adding up the fixed costs, depreciation, and variable costs and dividing by the sales quantity:

Total cost = fixed costs + depreciation + variable costs
Total cost = $39,480 + $8,724 + $5,607
Total cost = $53,811

Sales quantity = 1,330 units
Total revenue = sales quantity x selling price per unit

Total revenue = $53,811
Selling price per unit = total revenue / sales quantity
Selling price per unit = $53,811 / 1,330
Selling price per unit = $40.38

Now we can calculate the contribution margin per unit:

Contribution margin per unit = selling price per unit - variable cost per unit
Contribution margin per unit = $40.38 - ($5,607 / 1,330)
Contribution margin per unit = $40.38 - $4.21
Contribution margin per unit = $36.17

Therefore, the answer is C) $36.24

A Proposed Project Has Fixed Costs of $39,480, Depreciation Expense