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Harry Company sells 20,000 units at $42 per unit. Variable costs are $26.88 per unit, and fixed costs are $105,800. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

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Answer:

Instructions are below.

Explanation:

Giving the following information:

Harry Company sells 20,000 units at $42 per unit. Variable costs are $26.88 per unit, and fixed costs are $105,800.

To calculate the contribution margin ratio, we need to use the following formula:

contribution margin ratio= contribution margin / selling price

contribution margin ratio= (42 - 26.88) / 42

contribution margin ratio= 0.36

Now, the contribution margin:

Contribution margin= 42 - 26.88= $15.12

Finally, income from operations:

Contribution margin= 20,000*15.12= 302,400

Fixed costs= (105,800)

Net operating income= 196,600

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