7. You are going to open a business making custom cabinets. You can sell each cabinet for $80. It takes a cabinetmaker approximately 45 minutes to make one cabinet. Each cabinetmaker works an 8-hour day earning $18 per hour. Each cabinet uses $25 in raw materials. You usually produce cabinets 20 days a month and can employ two cabinetmakers. You estimate that your fixed costs are $5,000 per month. a. What is your contribution margin

Question

Business

Jessie York

3 November, 08:17

7. You are going to open a business making custom cabinets. You can sell each cabinet for $80. It takes a cabinetmaker approximately 45 minutes to make one cabinet. Each cabinetmaker works an 8-hour day earning $18 per hour. Each cabinet uses $25 in raw materials. You usually produce cabinets 20 days a month and can employ two cabinetmakers. You estimate that your fixed costs are $5,000 per month. a. What is your contribution margin

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Answers (1)

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Julia Thomas · Answer 1

Contribution Margin is 51.875%

Explanation:

Contribution Margin = Contribution/Selling Price * 100

Contribution

Contribution = Selling Price / unit - Variable Costs / Unit

Selling Price $80.00

Less Variable Costs

Raw Materials ($25.00)

Direct Labour (45mins/60mins*$18) ($13.50)

Contribution ($41.50)

Contribution Margin

$41.50/$80.00*100=51.875%