Xenoc, Inc., produces stereo speakers. The selling price per pair of speakers is $800. The...

Question:

Xenoc, Inc., produces stereo speakers. The selling price per pair of speakers is $800. The variable cost of production is $900 and the fixed cost per month is $50,00. Calculate the expected profit for November assuming the company sells 120 pairs of speakers as planned, but the selling price changes to $1,000.

Contribution Margin:

The difference between the selling price and the variable cost is called the contribution margin. To compute the total contribution margin, the unit contribution margin should be multiplied by the units sold. The contribution margin is used to meet the fixed costs of the company and the excess of it over the fixed cost results in operating income and operating losses, the other way round.

Answer and Explanation: 1


The expected profit is $7,000.

Explanation:

As per data:

  • Selling price = $1,000
  • Variable cost = $900
  • Fixed cost = $5,000

Computation:

  • Expected profit = Units sold * (Selling price - Variable cost) - Fixed costs
  • Expected profit = 120 speakers * ($1,000 - $900) - $5,000
  • Expected profit = $7,000

Learn more about this topic:

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Contribution Margin: Definition & Formula

from

Chapter 22 / Lesson 20

Understand what the contribution margin is. Learn the definition of contribution margin and understand its importance in business. Discover how to calculate it through examples.


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