Question

In the month of June, Jose Hebert's Beauty Salon gave 4,125 haircuts, shampoos, and permanents at an average price of $40. During the month foed costs were $16.500 and variable costs were 75% of sales

Determine the contribution margin in dollars per unit and as a ratio. (Round contribution margin and contribution margin per unit to 2 decimal places, eg: 5.75.
Contribution margin $ _____
Contribution margin per unit $ _____
Contribution margin ratio _____

Answer 1

The contribution margin for Jose Hebert's Beauty Salon is $41,250, or $10.00 per unit, with a contribution margin ratio of 25%. These figures illustrate how much is being earned after variable costs to contribute to fixed costs and profit.

Step-by-step explanation:

To calculate the contribution margin in dollars per unit and as a ratio, follow these steps:

1. First, calculate total sales by multiplying the number of services provided by the average price: 4,125 services × $40 = $165,000.
2. Next, calculate total variable costs, which are 75% of sales, so $165,000 × 75% = $123,750.
3. The contribution margin in dollars is sales minus variable costs: $165,000 - $123,750 = $41,250.
4. The contribution margin per unit is the contribution margin in dollars divided by the number of services: $41,250 / 4,125 = $10.00 per service.
5. Finally, calculate the contribution margin ratio by dividing the contribution margin in dollars by total sales: $41,250 / $165,000 = 0.25 or 25%.

The contribution margin helps a business understand how much revenue is available to cover fixed costs and generate profits after variable costs are paid. In Jose Hebert's Beauty Salon's case, for each service provided, $10.00 is contributing to cover fixed costs and profits. The ratio of 25% means that for every dollar of revenue, $0.25 is available after variable costs.