Question

Dairy Days Ice Cream sells ice cream cones for $4 per customer. Variable costs are $3 per cone. Fixed costs are $2,500 per month. What is Dairy Days' contribution margin ratio

Answer 1

0.25 or 25 %

Step-by-step explanation:

Contribution Margin ratio is defined as contribution expressed as a percentage or decimal of the sales revenue.

Where

Contribution = Sales - Variable Cost

= $4 - $3

= $ 1

Therefore,

Contribution Margin ratio = Contribution ÷ Sales

= ($4 - $3) ÷ $3

= 0.25 or 25 %