Question

Contribution margin

Molly Company sells 37,000 units at $29 per unit. Variable costs are $17.40 per unit, and fixed costs are $167,400.

Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) operating income.

Line Item Description Answer
a. Contribution margin ratio (Enter as a whole number.) fill in the blank 1
40
%
b. Unit contribution margin (Round to the nearest cent.) $fill in the blank 2
11.60
per unit
c. Operating income $fill in the blank 3

Answer 1

To determine the contribution margin ratio, unit contribution margin, and operating income for Molly Company, we can follow these steps.

### Given Information:
- Units sold = 37,000
- Selling price per unit = $29
- Variable cost per unit = $17.40
- Fixed costs = $167,400

### Calculations:

#### a. Contribution Margin Ratio

1. **Find the total contribution margin:**
Contribution Margin (CM) per unit = Selling Price per Unit - Variable Cost per Unit

\[
CM \text{ per unit} = 29 - 17.40 = 11.60
\]

2. **Calculate the contribution margin ratio:**
Contribution Margin Ratio = \( \frac{\text{Total Contribution Margin}}{\text{Total Sales}} \)

Total Sales = Selling Price per Unit × Units Sold
\[
\text{Total Sales} = 29 \times 37,000 = 1,073,000
\]

Total Contribution Margin = CM per unit × Units Sold
\[
\text{Total Contribution Margin} = 11.60 \times 37,000 = 429,200
\]

Now, calculate the contribution margin ratio:
\[
\text{Contribution Margin Ratio} = \frac{429,200}{1,073,000} \approx 0.399
\]

As a whole number percentage:
\[
\text{Contribution Margin Ratio} \approx 40\%
\]

So, the answer for (a) is **40**%.

#### b. Unit Contribution Margin
As calculated earlier:
\[
\text{Unit Contribution Margin} = 11.60
\]
So, the answer for (b) is **$11.60**.

#### c. Operating Income

1. **Calculate Operating Income:**
Operating Income = Total Contribution Margin - Fixed Costs

\[
\text{Operating Income} = 429,200 - 167,400 = 261,800
\]

So, the answer for (c) is **$261,800**.

### Final Answers:
Line Item Description | Answer
----------------------- | --------
a. Contribution margin ratio (Enter as a whole number.) | **40**
b. Unit contribution margin (Round to the nearest cent.) | **$11.60**
c. Operating income | **$261,800**