Question

Knowledge Check 01 Cartier Corporation currently sells its products for $50 per unit. The company’s variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company’s contribution margin ratio?

Answer 1

Answer:

Contribution margin ratio = 0.6 or 60%

Explanation:

The contribution margin per unit is the amount that each unit contributes to covering the total fixed costs. It is the contribution of each unit towards fixed costs after deducting the variable costs per unit from the selling price per unit.

The contribution margin ratio is the unit contribution margin expressed as a percentage of the selling price per unit.

Contribution margin ratio = Contribution margin per unit / Selling price per unit

Where,

Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = 50 - 20 = $30

Contribution margin ratio = 30 / 50 = 0.6 or 60%