Reference no: EM132104956

Contribution of each unit toward covering fixed cost is (sales-variable costs)/units sold. In the following how do I calculate it when this company makes the changes and I don't know the sales volume.How would the variable cost change. Contribution Margin is unit contribution/unit sales price.

Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed.

In an attempt to improve products the company is replacing a component part that cost $2.50 with one that cost $4.50 per unit. A new machine will also be needed to increase plant capacity. The machine will cost $18,000 with a useful like of six years and no salvage value. The company uses straight-line depreciation.

The question is: If the company wishes to maintain the same contribution-margin ratio, what selling price per unit of product must it charge next year to cover the increased direct-material cost?

In an early question that asked for the break even point before the changes I had these calculations which I can use to calculate the current contribution margin as $10/$25 = .40 1.   What is the breakeven point in number of units.

a.   25,000 x $25 = $625,000 sales revenue. $625,000 - $375,000 (variable costs) = $250,000 total contribution margin. $250,000 / 25,000 = $10 Contribution per unit.

b.   Breakeven point = Fixed Expenses / contribution of each unit toward covering fixed cost. $150,000 / $10 = 15,000 unit break-even point.

So I believe I need to calculate the new unit contribution margin and divide it by an unknown unit sales price to make it = .40. My problem is I don't know how to get the new unit contribution, can you explain this to me?