Question

Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 million dollars in combined promotion and sales budget, the Dune 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?
a. $21.00
b. $23.00
c. $22.75
d. $24.50

Answer 1

Answer:

they need to limit the material and labor costs to $22.75

so correct option is c. $22.75

Explanation:

given data

promotion and sales  =  $3 million

contribution margin = 35%

Selling price =  $35.00

to find out

what would they need to limit the material and labor costs to

solution

we get first here Contribution margin per unit that is

Contribution margin = contribution margin × Selling price    ..............1

Contribution margin = $35  × 35%

Contribution margin = $12.25 per unit

and

Variable cost will be

Variable cost = Selling price - Contribution margin ..............2

Variable cost = $35 - $12.25

Variable cost = $22.75 per unit

and

Variable cost = Direct materials costs + Direct labor costs + Direct factory overheads     ...............3

here direct factory overheads is given = 0

so

$22.75 = Direct materials costs + Direct labor costs

so

they need to limit the material and labor costs to $22.75

so correct option is c. $22.75