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Unit 3 Discussion Post

To calculate the contribution margin and contribution margin percent for a manufacturing company: 1) Identify the variables of sales price per unit and variable cost per unit. 2) Calculate the contribution margin in total, per unit, and as a percent using hypothetical values from Raymond, a textile company. 3) The results show Raymond has a high contribution margin of 65.53% indicating significant room for overhead costs and potential for profit.

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549 views3 pages

Unit 3 Discussion Post

To calculate the contribution margin and contribution margin percent for a manufacturing company: 1) Identify the variables of sales price per unit and variable cost per unit. 2) Calculate the contribution margin in total, per unit, and as a percent using hypothetical values from Raymond, a textile company. 3) The results show Raymond has a high contribution margin of 65.53% indicating significant room for overhead costs and potential for profit.

Uploaded by

Simran Pannu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Refer to the manufacturing company you selected for the Unit 2 Discussion and explain how you

would determine the company’s contribution margin and contribution margin percent. In your initial
post include the following:

 Identify which specific variables should be included in the calculation.


 Illustrate your explanation by calculating the contribution margin and contribution margin
percent using hypothetical values.
 Explain what your calculated results tell you about the company’s sales and cost structure.

https://www.raymond.in/report

For any manufacturing company, the contribution margin is measured as the per unit sale price,
minus the per unit variable rate. The formula for contribution margin is as follows.

A financial statement of the contribution margin first subtracts the variable costs and then
subtracts the fixed costs. Similarly, operating costs include both production and sale expenses.

In three ways, we can measure the contribution margin:

1. In Total = CM = Total Revenue – Total Variable Cost 298.45


2. As per Ratio = CM Ratio = (Sales Revenue -Variable Cost)/ Sales Revenue
3. Per Unit = CM per Unit = Sale price per unit – Variable Cost per unit

Total Sales Revenue = 6,482,370

Sales price per unit = 6,482,370 / 21720 = 298.45

Variable Cost per Unit = 2,234,280 / 21720 = 103

In three ways, we measured the contribution margin:


1. In Total = CM = Total Revenue – Total Variable Cost
= 6,482,370 – 2,234,238
= 4,248,090

2. As per Ratio = CM Ratio = (Sales Revenue -Variable Cost)/ Sales Revenue


= (6,482,370 – 2,234,238) / 6,482,370
= 65.53%

3. Per Unit = CM per Unit = Sale price per unit – Variable Cost per unit
= 298.45 – 103.00
= 195.45

The above calculation of contribution margin in Total, as per Unit and as per Ration shows the
company has high contribution margin of 65.53%. The company has quite big room for other
overhead expenses such as salary, rent, electricity etc. and the profit in the income statement
could be significant.

References.

The Raymond Group. (n.d.). Retrieved from https://www.raymond.in/theraymondgroup

Walther, L. M. & Skousen, C. J. (2018). Managerial and Cost Accounting. Retrieved from


https://my.uopeople.edu/pluginfile.php/616278/mod_resource/content/3/managerial-andcost-
accounting-compressed.pdf

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