Question

Peeler's Smoothie Company has provided the following​ information: Sales price per unit ​$6.50 Variable cost per unit ​$2.00 Fixed costs per month ​$1,500 Calculate the contribution margin ratio.​ (Round your answer to two decimal​ places.)

Answer 1

Answer:

contribution margin ratio. = 0.62

Explanation:

The first concep to define would be contribution margin:

$Sales Revenue - Variable Cost = Contribution Margin$

Contribution margin is the amount left after deducing the variable cost.

Now the Contribution Margin ratio would be:

$\frac{Contribution Margin}{Sales Revenue}= Contribution Margin Ratio$

This represent how much is left per dollar of sale

So a ratio of 0.25 means that per every dollar of sales, the business generates 0.25 cent of contribution

Now that we got this clear, we proceed with the calculation:

$6.50 - 2 = 4.5 Contribution Margin$

$\frac{4}{6.5} = 0.6154 Contribution Margin Ratio$

The fixed cost are irrelevant for this calculations.