DJ Studios Is Considering Opening a New Location

question 413

Multiple Choice

DJ Studios is considering opening a new location. This location is estimated to bring in sales of $398,000 a year with total variable costs of $62,000, total fixed costs of $274,500, and estimated unit sales of 1,200. The depreciation expense is $18,900 a year. What is the contribution margin per unit?

• A) $103
• B) $117
• C) $280
• D) $284
• E) $291

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Straight-Line Method

A depreciation technique that allocates an equal portion of the cost of an asset to each year of its useful life.

U.S. GAAP

In the United States, the Generally Accepted Accounting Principles represent a standard set of guidelines for financial accounting.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time.