Question

Terry’s Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25. The fixed costs are $3,000 per month. What is the firm’s contribution margin per picture frame?

Answer 1

Answer:

59.375%

Explanation:

Mathematically, the contribution margin ratio can be solved using the following formula;

(Sales-variable cost)/sales * 100%

According to the question, the sales is $8 per picture, while the variable cost is $3.25

The contribution margin ratio is thus:

(8-3.25)/8 * 100/1

4.75/8 * 100% = 59.375%