Question

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:
Sales $ 3,240,000
Variable expenses 1,620,000
Contribution margin 1,620,000
Fixed expenses 180,000
Net operating income $ 1,440,000

What is the product's CM ratio?

Answer 1

Answer:

50%

Explanation:

Given: Selling price= $120 per unit.

          Variable cost= $60 per unit.

First computing contribution margin.

Contribution margin= $Selling\ price\ per\ unit - variable\ cost\ per\ unit$

⇒ Contribution margin= $\ 120 - \ 60$

∴ Contribution margin=  $\ 60$

Now, calculating the contribution margin ratio.

Contribution margin ratio= $\frac{Contribution\ margin}{selling\ price\ per\ unit}$

⇒ Contribution margin ratio= $\frac{\ 60}{\ 120} \times 100$

∴ Contribution margin ratio= $50\%$

Hence, the product´s contribution ratio is 50%.