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Polaris Inc
Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals $146,000. Each door handle sells for $12 and has variable cost of $9; each trim kit sells for $8 and has variable cost of $5. Required: What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits?
Expert Solution
Computation of the contribution margin per unit for door handles:-
Contribution margin per unit = Selling price per unit - Variable cost per unit
= $12 - $9
= $3 per unit
Computation of the contribution margin ratio for door handles:-
Contribution margin ratio = Contribution margin per unit / Selling price per unit
= $3 / $12
= 25%
Computation of the contribution margin per unit for trim kits:-
Contribution margin per unit = Selling price per unit - Variable cost per unit
= $8 - $5
= $3 per unit
?Computation of the contribution margin ratio for trim kits:-
Contribution margin ratio = Contribution margin per unit / Selling price per unit
= $3 / $8
= 37.50%
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