Vaughn Manufacturing produces hair brushes. The selling price is $25 per unit and the variable costs are $8 per brush. Fixed costs per month are $4800. If Vaughn sells 40 more units beyond breakeven, how much does profit increase as a result?

= $680

Explanation:

he contribution margin is the difference between the selling price and variable costs. It is the amount available from the sale of one unit that meets to fixed costs and profits.

Using the contribution margin method, any sales after the break-even point contributes to profit.  At break-even, contribution margin has met the fixed costs.

Should Vaughn Manufacturing produce 40 more units after the break-even, the contribution margin from each will go straight to profits.

Therefore, the profits will increase by.

Contribution margin :$25 -$8 = $17

Increase in profits =: 17 X 40 = $680

= $680

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