Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 m

Question

Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 million dollars in combined promotion and sales budget, the Dim product manager wishes to achieve a product contribution margin of 35%. Given their product currently is priced at $35.00, what would they need to limit the material and labor costs to? Select: 1 $23.00 $24.50 $21.00 $22.75 Assuming no direct factory overhead costs (i.e., inventory carry costs) and $3 million dollars in combined promotion and sales budget, the Dim product manager wishes to achieve a product contribution margin of 35%. Given their product currently is priced at $35.00, what would they need to limit the material and labor costs to? Select: 1 $23.00 $24.50 $21.00 $22.75

Explanation / Answer

Desired contribution margin ratio = 35%

Selling price = $35 per unit

Contribution margin per unit = $35* 35% = $12.25 per unit

Variable cost = $35 - $12.25 = $22.75 per unit

Variable cost = Direct materials costs + Direct labor costs + Direct factory overheads

Direct factory overheads = 0

Direct materials costs + Direct labor costs = $22.75

Hence, Dim product manager need to limit the material and labor costs to $22.75

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