It costs Homer's Manufacturing $ 0.95 to produce baseballs and Homer sells them for $ 4 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $ 14 comma 000 a month rent for his factory and store, and also pays $ 80 comma 000 a month to his staff in addition to the commissions. Homer sold 70 comma 500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his contribution margin?

Contribution Margin is $200,925.

Explanation:

Contribution margin is calculated by taking Sales Revenue and deducting all the Variables costs from it. In this case, we have two costs that are variable: $.95 of Manufacturing Cost and 5% of Commission that is Paid to Sales Staff.

Workings

Sales (4 * 70,500)                                            $282,000

Cost  (.95 * 70,500)                                            (66,975)

Sales Commission (.05 * 282,000)                    (14,100)

Contribution Margin                                       $200,925

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