Can someone help with the following problem? My question is why Variable Selling and Administrative Costs are included in this formula to arrive at Contribution Margin? Isn’t Variable Selling and Administrative Costs a period expense, which should be deducted after you have calculated Contribution Margin? I’m so confused!!!!

The following information relates to Clyde Corporation, which produced and sold 50,000 units during a recent accounting period.

Sales: $850,000

Manufacturing Costs:

              Fixed-$210,000

              Variable-$140,000

Selling & Administrative Costs:

               Fixed-$300,000

               Variable-$45,000

Income Tax Rate: 40%

For the next accounting period, if productions are expected to be 40,000 units, the company should anticipate a contribution margin per unit of:

1. 0.55
2. $3.10
3. $9.10
4. $13.30

Choice "d" is correct.  $13.30 contribution margin per unit.

Sales                                                       $850,000

Variable manufacturing costs      (140,000)

Variable S&A costs                            (45,000)

Contribution margin                        665,000

Units                                                       ÷ 50,000

Contribution margin per unit      $   13.30

Note that contribution margin per unit does not change with volume.

Hey,

Yea--- Don't forget, there is no where on an income statement that says "Contribution Margin". Contribution Margin is simply sales revenie minus all related variable costs including selling costs. Remember, Variable Selling Costs dont go into inventory costs with either absorbtion OR variable costing. It is a period cost with both-- however, it does go into the contribution margin equation.