Question: Contribution Margin Model Variations ABC Company has a product with the following data: Selling price per unit $15.00 Variable expense per unit $8.00 Fixed expenses

Contribution Margin Model Variations

ABC Company has a product with the following data:

Selling price per unit $15.00

Variable expense per unit $8.00

Fixed expenses for the period $20,000

Sales volume in units 5,000

Part A Build the Contribution Model to show total operating income, per unit Contribution Margin, and the Contribution Margin Ratio for the product.

Part B Management wants to know the impact of a $4.00 per unit price cut were to result in a volume increase of 1,000 units, to 6,000 units. Build the Contribution Model to show the impact of the changes. Should management approve the changes?

Part C Now suppose management wants to see the impact of spending $2,000 in additional fixed advertising expenses while keeping the $4.00 per unit price cut. Management believes the volume of units sold will increase to 13,000 units. Build the Contribution Model to show the impact of these changes. Should management approve the changes?

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