Answer:
they must restrict material and labor costs to $22.75
Explanation:
given information
total marketing expense = $3 million
contribution margin ratio = 35%
Unit selling price = $35
to determine
the required limitation for material and labor costs
calculation
We obtain the contribution margin per unit defined as
Contribution margin per unit = $35 × 35%
Contribution margin per unit = $12.25 per unit
Subsequently, the Variable cost is
Variable cost = $35 - $12.25
Variable cost = $22.75 per unit
Furthermore, Variable cost can also be defined as
Variable cost = Direct materials + Direct labor + Direct manufacturing overhead..............1
In this instance, direct manufacturing overhead is 0 and Direct materials + Direct labor equates to $22.75
So substituting into equation 1
Variable cost = $22.75 + 0 = $22.75
Hence, it is necessary for them to keep material and labor costs within $22.75