Question

Discount Airlines is preparing a contribution margin report segmented by route. The following information is available: Atlanta/ New York Miami/LA New York/ Chicago Average ticket price per passenger $900 $1,250 $750 Total passengers served 8,800 7,100 10,200 Total miles flown 121,000 190,000 95,000 The variable costs per unit are as follows: Food/beverage service $7 per passenger Selling $90 per passenger Fuel $15 per mile Wages $20 per mile What is the contribution margin ratio for the Miami/LA route (rounded to one decimal place)?

Answer 1

Answer:

17.3%

Explanation:

The contribution margin ratio is shown below:

Contribution margin ratio = Contribution margin ÷ Sales × 100

where,

Contribution margin is

= Sales - variable cost

Sales arise from passengers ($1,250 × 7,100)  $8,875,000  

Less:  

Food ($7 × 7,100) $497,00  

Selling ($90 × 7,100) $639,000  

Fuel ($15 × 190,000) $2,850,000  

Wages ($20 × 190,000) $3,800,000  

Total variable cost ($7,338,700)  

Contribution margin  $1,536,300  

So, the contribution margin ratio is

= $1,536,300 ÷ $8,875,000  

= 17.3%