Red Hawk Enterprises sells handmade clocks. Its variable cost per clock is $5.20, and each clock sells for $13.00. Calculate Red Hawk's unit contribution margin. Calculate Red Hawk's contribution margin ratio. Suppose Red Hawk sells 2,250 clocks this year. Calculate the total contribution margin.

Question

Business

Clark Ferrell

18 September, 00:12

Red Hawk Enterprises sells handmade clocks. Its variable cost per clock is $5.20, and each clock sells for $13.00. Calculate Red Hawk's unit contribution margin. Calculate Red Hawk's contribution margin ratio. Suppose Red Hawk sells 2,250 clocks this year. Calculate the total contribution margin.

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Genevieve Combs · Answer 1

Contribution margin per unit = $7.8

Contribution Margin Ratio = 60% or 0.6

Total contribution margin at 2250 units = $17550

Explanation:

The unit contribution is the difference in the unit selling price and unit variable cost for a product.

The unit contrbution margin for Red Hawk = 13 - 5.2 = $7.8 per unit

The contribution margin ratio simply represents the unit contribution margin as a percentage of selling price.

The contribution margin ratio = contribution margin per unit / selling price per unit

For Red Hawk CM Ratio = 7.8 / 13 = 0.6 or 60%

Total Contribution margin at 2250 units = 7.8 * 2250 = $17550