Question

Cool Fan Company sells 10,000 units to wholesalers each year at $60 per unit. The materials cost $10 per fan and unit labor cost is $15. The total promotion and marketing costs are $100,000. The facility expenses are $80,000 per year and other overheads cost $20,000. What is the unit contribution of each fan?a. $ 150,000
b. $ 200,000
c. $ 250,000
d. $ 300,000
e. $ 350,000

Answer 1

Answer:

e. $ 350,000

Explanation:

Given: Total number of units= 10000.

           Selling price= $60 per unit.

           The material cost= $10 per fan

           Labor cost= $15 per unit.

           Promotion and marketing cost= $100000.

           Facility expense= $80000.

           Other overhead cost= $20,000.

Now, finding the variable cost of fan.

Variable cost= $Total\ material\ cost + Labor\ cost$

Variable cost= $(\ 10\times 10000+ \ 15 \times  10000)$

⇒ Variable cost= $\ 100000+\ 150000= \ 250000$

∴ Variable cost= $250000.

Selling price= $(\ 60\times 10000)= \ 600000$

∴ Selling price of fan is $600000.

Unit contribution= $(selling\ price - variable\ cost)$

Next find the unit contribution of each fan.

⇒ Unit contribution=  $(\ 600000 - \ 250000)$

∴ Unit contribution of each fan is $350000.