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13 March, 10:32

It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his contribution margin? A) $205,875B) $334,125C) $64,125D) $270,000

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  1. 13 March, 14:22
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    A) $205,875

    Explanation:

    The formula to compute the contribution margin is shown below:

    Contribution margin = Sales - Variable cost

    where,

    Sales = Number of basketballs sold * selling price per unit

    = 67,500 * $4

    = $270,000

    And, the variable cost = Sales commission + manufacturing cost

    The sales commission = Sales revenue * commission percentage

    = $270,000 * 5%

    = $13,500

    And, the manufacturing cost equal to

    = Number of basket balls sold * price per unit

    = 67,500 * $0.75

    = $50,625

    So, the variable cost equal to

    = $13,500 + $50,625

    = $64,125

    Now put these values to the above formula

    So, the value would equal to

    = $270,000 - $64,125

    = $205,875
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