Question - The contribution margin of an item is often a key piece of data used in deciding how viable that item is for the company and, in turn, how much will be invested in improving and retaining that item. In your strategic planning, you have decided that if a sensor product has a contribution margin less than 25%, then that sensor product line will be discontinued.
Currently, the following data is known about your Adam sensor product, at the sensor unit level.
- Direct labour cost $10.07
- Direct material cost of $13.36
- Inventory Carrying cost $8.25
- Promotion budget $8.94
- R&D cost $4.54
- Selling price $49.69
Calculate the contribution margin percentage for your Adam sensor product.