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12 April, 06:06

Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 800,000 units, the company pays $600,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $250,000 of which $70,000 are fixed costs. What is the amount of contribution margin per unit? a. $0.400 b. $0.5375 c. $0.250 d. None of these is correct.

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  1. 12 April, 07:41
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    option (a) $0.400

    Explanation:

    Data provided in the question:

    Selling cost = $1

    Production and sales = 800,000 units

    Production costs = $600,000

    Fixed cost = 50% of $600,000

    = 300,000

    General, selling, and administrative costs amount = $250,000

    Fixed costs = $70,000

    Now,

    Variable Production costs per unit = Fixed cost : Production and sales

    = 300,000 : 800,000

    = $0.375

    Variable General, selling, and administrative per unit

    = ($250,000 - $70,000) : 800,000

    = $0.225

    Total variable expense per unit = $0.375 + $0.225

    = $0.6

    Therefore,

    contribution margin per unit = Selling cost - Total variable cost

    = $1 - $0.6

    = $0.4

    Hence,

    The answer is option (a) $0.400
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