Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 9

An organization is projecting sales of 100,000 units, at a unit price of $12. Unit variable costs are $7. If fixed costs are $350,000, what is the projected total contribution margin?

Answer options

• A. $350,000
• B. $500,000
• C. $850,000
• D. $1,200,000

Correct answer: B

Explanation

The contribution margin is calculated by subtracting the total variable costs from the total sales revenue. In this case, total sales revenue is $1,200,000 (100,000 units * $12), and total variable costs are $700,000 (100,000 units * $7), yielding a contribution margin of $500,000. The other options do not accurately reflect this calculation.