Question

Peeler's Smoothie Company has provided the following​ information: Sales price per unit ​$6.50 Variable cost per unit ​$2.00 Fixed costs per month ​$1,500 Calculate the contribution margin ratio.​ (Round your answer to two decimal​ places.)

Answer 1

The contribution margin ratio for Peeler's Smoothie Company is 0.69 or 69%, which means that for each dollar of sales, 69 cents contribute to covering fixed costs and profit.

Step-by-step explanation:

The contribution margin ratio is calculated as the difference between the selling price per unit and the variable cost per unit, divided by the selling price per unit. For Peeler's Smoothie Company, the contribution margin per unit is $6.50 (sales price per unit) - $2.00 (variable cost per unit) = $4.50. To find the contribution margin ratio, we divide the contribution margin per unit by the sales price per unit:

Contribution Margin Ratio = ($4.50 ÷ $6.50) = 0.6923

Rounded to two decimal places, the contribution margin ratio is 0.69 or 69%. This means that for each dollar of sales, the company contributes 69 cents to cover its fixed costs and profit.