Sitting Pretty, Inc. makes garden chairs that sell for $800 each. The variable cost of producing the chairs is $300 per unit and the fixed costs are $50,000 each month.
a. What is the contribution margin associated with the chairs produced and sold by Sitting Pretty?
b. In June, the company had sales that were $5,000 higher than anticipated. What is the expected effect on profits as a result of these sales?
Contribution margin = [Selling price - Variable cost] = $800 - $300 = ...
The brief calculations to find the contribution margin and effect on profits of higher-than-expected sales for Sitting Pretty are shown.