Question

Ast month when Holiday Creations Inc. Sold $50,000 units, total sales were $200,000. Total variable costs were $120,000 and total fixed costs were $65,000. So, the company's CM ratio will be

Answer 1

40%

Explanation:

The first step is to calculate the unit selling price

= total sales/number of units

= 200,000/50,000

= $4

The unit variable expense can be calculated as follows.

= total variable expense/number of units

= 120,000/50,000

= $2.4

The contribution margin per unit can be calculated as follows

=selling price per unit- variable cost.

= $4-$2.4

= $1.6

Therefore the contribution margin ratio can be calculated as follows.

= $1.6/$4

= 0.4×100

= 40%