Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company's revenue and cost structure:$\begin{array} { | l | r | }
\hline \text { Selling price per unit } & \$ 40 \
\hline \text { Sales commission } & 5 \% \
\hline \text { Purchase price (cost) per unit } & \$ 18 \
\hline \text { Advertising expense } & \$ 4,000 \text { per month } \
\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \
\hline
\end{array}$Assume that all activity mentioned in this problem is within the relevant range.

-What is the expected contribution margin next month?
A) $11,200.
B) $14,400.
C) $16,000.
D) $17,600.

Question

Gasson Company is a merchandising firm. Next month, the company expects to sell 800 units. The following data describe the company's revenue and cost structure:$\begin{array} { | l | r | } 
\hline \text { Selling price per unit } & \$ 40 \
\hline \text { Sales commission } & 5 \% \
\hline \text { Purchase price (cost) per unit } & \$ 18 \
\hline \text { Advertising expense } & \$ 4,000 \text { per month } \
\hline \text { Administrative expense } & \$ 4,500 \text { per month plus } 15 \% \text { of sales } \
\hline
\end{array}$Assume that all activity mentioned in this problem is within the relevant range.

-What is the expected contribution margin next month?
A) $11,200.
B) $14,400.
C) $16,000.
D) $17,600.

Quizplus · Accepted Answer

Contribution margin is the difference between sales revenue and variable costs. In this case, the variable costs are the sales commission and the purchase price. The sales commission is 5% of the selling price, or $2 per unit. The purchase price is $18 per unit. Therefore, the total variable cost per unit is $20. The contribution margin per unit is $40 - $20 = $20. The expected contribution margin next month is 800 units * $20 = $16,000.

Gasson Company Is a Merchandising Firm Assume That All Activity Mentioned in This Problem Is Within