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

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