Krepps Corporation produces a single product. Last year, Krepps manufactured 27,120 units and sold 21,800 units. Production costs for the year were as follows: Direct materials 222,384 Direct labor 124,752 Variable manufacturing overhead 208,824 Fixed manufacturing overhead 461,040 Sales totaled $915,600 for the year, variable selling and administrative expenses totaled $128,620, and fixed selling and administrative expenses totaled $197,976. There was no beginning inventory. Assume that direct labor is a variable cost. The contribution margin per unit was:

The contribution margin is the revenue that is still available to a business after subtracting all variable costs. It is used to cover the fixed costs to enable the business to earn a profit.

Data and Calculations:

Quantity produced last year =27,120 units

Sales last year = 21,800 units

Products costs for the year:

Direct materials $222,384

Direct labor 124,752

Manufacturing overhead 208,824

Selling & administrative expenses 128,620

Total variable costs $684,580

Fixed manufacturing overhead 461,040

Variable selling and administrative expenses = $128,620

Fixed selling and administrative expenses = $197,976

Computing the Contribution Margin:

Sales for the year = $915,600

Total variable costs (684,580)

Contribution margin $231,020

Sales units 21,800

Contribution margin per unit = $10.60 ($231,020/21,800)

Thus, the contribution margin per unit for Krepps was $10.60.

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