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Contribution margin

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Rhetorix, Inc. produces stereo speakers.The selling
price per pair of speakers is $900. The variable cost of production is $300 and the fixed cost
per month is $60,000.

Required

a. Calculate the contribution margin associated with a pair of speakers.

b. In August, the company sold six more pairs of speakers than planned.What is the expected
effect on profit of selling the additional speakers?

c. Calculate the contribution margin ratio for Rhetorix associated with a pair of speakers.
(Round to 2 decimal places.)

d. In October, the company had sales that were $7,000 higher than planned.What is the
expected effect on profit related to the additional sales? (Round to the nearest dollar.)

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Solution Summary

The solution explains some calculations relating to contribution margin.

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a. Contribution margin = selling price - variable cost = 900-300 = $600

b. Additional sales will increase contribution margin which will fully go towards ...

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