Aon Company produces three products: A, B, and C. The selling price, variable co
ID: 2388287 • Letter: A
Question
Aon Company produces three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:Product
A B C
Selling price $120 $180 $130
Variable costs:
Direct materials 71.40 65.40 80.70
Direct labor 10.50 28.00 14.00
Variable
manufacturing overhead 2.10 5.60 2.80
Total variable cost 84.00 99.00 97.50
Contribution margin $ 36.00 $ 81.00 $ 32.50
Contribution margin ratio 30% 45 % 25 %
Due to a strike in the plant of one of its competitors, demand for the company
Explanation / Answer
follow thisTarget Sales Volume (in dollars) = Fixed Costs + Target Operating Income 10. Contribution Margin Ratio = $145,000 + $30,000 .35 = $500,000 per month 11. At the break-even point, a company earns a total contribution margin exactly equal to its fixed costs. By dividing the unit contribution margin into this required total contribution margin, we can determine the number of units that must be sold to enable the company to cover its fixed costs. 12. If the contribution margin ratio is 35%, variable costs must account for the other 65% of total revenue. If 65% of total revenue is equal to $26 per unit, the unit sales price must be $26
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