Question

Mary walker sells homemade knit scarves for $25 each at local craft shows. Her contribution margin ratio is 60%. Currently, the craft show entrance fees cost Mary $1,500 per year. The craft shows are raising their entrance fees by 25% next year. How many extra scarves will Mary have to sell next year just to pay for rising entrance fee costs?

Answer 1

Mary will need to sell 25 extra scarves next year to cover the rising entrance fee costs.

Step-by-step explanation:

Mary Walker sells homemade knit scarves for $25 each at local craft shows. Her contribution margin ratio is 60%. Currently, the craft show entrance fees cost Mary $1,500 per year. The craft shows are raising their entrance fees by 25% next year. To determine how many extra scarves Mary will have to sell next year to cover the rising entrance fee costs, we need to calculate the increase in entrance fee cost and divide it by the contribution margin ratio.

The current entrance fee cost is $1,500. With a 25% increase, the new entrance fee cost will be $1,500 * 1.25 = $1,875. The cost increase is $1,875 - $1,500 = $375.

To cover the $375 cost increase, Mary needs to sell scarves worth $375 / 0.6 = $625. Each scarf is priced at $25, so the number of scarves Mary needs to sell is $625 / $25 = 25 extra scarves.