Mendez Company currently produces and sells 20,000 units of product at a selling price of $10. The product has variable costs of $4 per unit and fixed costs of $50,000. The company currently earns a total contribution margin of?
Contribution margin = sales revenue - variable cost... So (20000*10) 200000-(20000*4)80000= 120000
To find the total contribution margin for Mendez Company, we need to understand what contribution margin is first.
The contribution margin is the difference between the selling price of a product and its variable costs. It represents the amount of revenue that is available to cover both fixed costs and contribute to profit.
In this case, the selling price per unit is $10, and the variable costs per unit are $4. Therefore, the contribution margin per unit can be calculated as follows:
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
Contribution Margin per Unit = $10 - $4
Contribution Margin per Unit = $6
Now, to find the total contribution margin, we need to multiply the contribution margin per unit by the number of units sold:
Total Contribution Margin = Contribution Margin per Unit × Number of Units Sold
Total Contribution Margin = $6 × 20,000
Total Contribution Margin = $120,000
Therefore, the Mendez Company currently earns a total contribution margin of $120,000.