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natita
1 month ago
9

Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 million dollars in combined promotion and sales b

udget, the Bit product manager wishes to achieve a product contribution margin of 35%. Given their product currently is priced at $35.00, what would they need to limit the material and labor costs to?
Business
1 answer:
Mariulka [3.1K]1 month ago
8 0

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

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