1. Contribution margin is useful in determining whether a companys fixed costs are covered.
   • Test Your Understanding: A machine for manufacturing a new lipstick product costs a makeup company $10,000. Manufacturing one tube of lipstick requires
     • $0.50 worth of raw materials like wax, shea butter, dyes, and plastic for the tube;
     • $0.20 of electricity to run the machine to produce one tube; and
     • $0.30 worth of labor to make one tube of lipstick
       1. What represents this companys fixed costs?
       2. What is the variable cost per unit of lipstick?
     • If a total of 10,000 tubes of lipstick are manufactured using the current variable costs
       1. What are the total fixed costs for manufacturing the 10,000 tubes?
       2. What are the total variable costs for manufacturing the 10,000 tubes?
       3. What are the total manufacturing costs for the 10,000 tubes?
       4. What is the per-unit cost per tube of lipstick?
       5. What is the total profit per unit if one tube of lipstick is sold for $10 per tube?
       6. What is the contribution margin per unit in $?
       7. What is the contribution margin ratio in %?