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Question
Dodge Industries incurs the following costs during the current year:| Depreciation of machinery | $15,000 |
| Direct labor. | 6,000 |
| Direct materials | 4,000 |
| Executive salaries | 20,000 |
| Insurance | 2,000 |
| Rent on building | 8,000 |
| Sales commissions | 10,000 |
| Vehicle lease cost | 5,000 |
Sales for the year were $80,000 and Dodge Industries determined that only the direct production costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Dodge sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for Dodge
Industries.
(b) Dodge Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.
Answer
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