Pete's putters sells each putter for $125. the variable cost is $60 per putter and fixed costs total $400,000. based on this information:
- pete's putters is unable to make a profit.
- the contribution margin per putter is $65.
- lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit .
- the sale of 12,000 putters results in net operating income of $380,000.

Ans. the correct answers are:

b) The contribution margin per putter is $65.

d) The sale of 12,000 putters results in net operating income of $380,000.

Explanation:

Hi, let´s talk about all the options.

a) "Pete's Putters is unable to make a profit"

That is only correct if he does not sell enough putters to get pass his BEP (break even point) since it does not say how many putters he is selling, and obviously he makes a profit  (he sells for $125 and its COGS is $60), he can potentially make a profit. So this statement it´s not true.

b) " The contribution margin per putter is $65"

That is correct, sells - COGS = Contribution Margin, and Peter´s Putters sells at $125 and it´s COGS is $60, so $125 - $60 = $65.

c) "lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit"

Not true, if the company lowers its variable costs to $45, its constribution margin will be $125 - $45 = $80, not $70. Therefore this statement is not true.

d) "The sale of 12,000 putters results in net operating income of $380,000"

Correct, if we multiply the company´s contribution margin by the number of putters sold and substract its fixed costs, you will get.

12,000*($65) - 400,000 = $780,000 - $400,000= $380,000

So, yes, this one is correct too.

Your answers are b) and d).

Best of luck.

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