SECTION C

1. a, With typical examples explain the meaning

of contribution Margin (1 marks)

b, Assume that the Pants Shop can purchase

pants for $32 from a local factory; other variable costs

amount

to $10 per unit. The local factory allows the Pants shop to return all unsold

pants and receive a

full $32 refund per pair of pants within one

year. The average selling price per pair of pants is $70 and

total

fixed costs amount to $84,000 (6

marks)

Required:

i,

How much revenue will the business receive if 2,500 units are sold?

ii,

How much variable costs will the business incur?

iii,

What is the contribution margin per unit?

iv,

What is the total contribution margin when 2,500 pairs of pants are sold?

v,

What is the contribution margin percentage?

vi,

If the business sells 3,000 pairs of pants, revenues and contribution margin

will be?