In 1987 RB resigned from his job as a computer salesperson to launch a new company based on his new invention, the Mfridge. The Mfridge was a combination refrigerator, freezer and 500-watt microwave designed for use in smaller spaces that weighed 87 pounds and was under four feet in height. You have been hired as a consultant to evaluate this business opportunity and implementation strategy.

B had secured a production deal with S-nyo, who would produce the Mfridge for him at a cost of $207 per unit, if he agreed to cover the $140,000 cost of setting up the production line. B also expected to face $265,000 in selling and administrative costs in the first year and $95,000 in startup costs.

B believed he could sell the units to the consumer at a selling price of $389, but would have to pay a distributor a fee of $39 per unit. As B is a small businessperson with only a sales background, he asks for your help with the following questions.

Q1. What is contribution margin, per unit?