Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.

The materials include $1,500 for the wood and other materials on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $12.The sales price will be set at a markup of 85%.

The companyestimatesthat it will have 16,000 direct labor hours in total for the kitchen cabinets.

It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Salaries- office & administrative

$ 520,000

Salaries for factory personal

$ 220,000

Office Rent

$ 125,000

Factory Rent

$20,000

Utilities and Misc office expenses(based on units sold)

$20,000

Travel(based on units sold)

$24,000

Insurance - office

$14,000

Depreciation - office equipment

$45,000

Depreciation for factory equipment

$70,000

Advertising

$20,000

Sales commissions(based on units sold)

$45,000

Factory Property taxes

$10,000

Maintenance for factory equipment

$80,000

1) What is the Contribution Margin (CM) in total and per unit dollars,and CM%for the sale of 800 kitchen cabinets?

2) Explain the importance of contribution margin (CM) and how it can be used by companies to predict future income. Create some examples with numbers to show how it can be used.

Note: An excel spreadsheet is preferred to show the importance of CM.

Please show calculation. Thank you!