Contribution Margin Format Example:

Volume XX

Sales XX

Variable Costs (Listed) XX

Variable Costs (Total) XX

Contribution Margin XX

Fixed Costs (Listed) XX

Fixed Costs (Total) XX

Operating Income XX

Data for all questions:

Stuckie produces white school glue. Their glue bottles are primarily sold at department stores across the country. The cost of manufacturing and marketing their glue, at their normal factory volume of 20,000,000 bottles of glue per month, is shown in the table below. Stuckie sells their glue bottles for $1.50 each. Stuckie is making a small profit, but they would prefer to increase their Operating Income.

Hint: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first.

Per Unit Per Unit

Unit Manufacturing Costs:

Variable Materials $0.30

Variable Labor $0.35

Variable Overhead $0.10

Fixed Overhead $0.25

Total Unit Manufacturing Costs: $1.00

Unit Marketing Costs:

Variable Marketing Costs $.05

Fixed Marketing Costs $.20

Total Unit Marketing Costs: $.025

Questions: Show all calculations

1. An office supply chain has offered to purchase 10,000,000 bottles of glue (one time in one month) if the sales price was lowered to $1.25 per bottle for that one-time sale. (This specific sale is all or nothing they will not purchase less than 10,000,000 bottles). Stuckies maximum capacity is 25,000,000 units, and this special sale would not impact the sales price of Stuckies normal sales to their usual customer base.

1. Prepare a monthly contribution margin income statement to show what would happen if Stuckies accepted the special sale to the office store chain and didnt sell any other glue that month.
2. Prepare a monthly contribution margin income statement to show what would happen if Stuckies accepted the special sale to the office store chain and produced at maximum capacity to sell as much glue as possible to their normal customers.
3. Compare Stuckies normal contribution margin income statement (from question 1) to the options available through the office supply chain (1A & 1B). Should Stuckies accept the specific sale from the office supply chain? Why or why not?