Question

Fruity Pebbles Apparel sells fruit themed shirts at $58.00 per shirt. It incurs monthly fixed costs of $4000. The contribution margin ratio is calculated to be 20%. What is the variable cost per shirt? (Round any intermediate calculations and your final answer to two decimal places.)

a.$46.40 per shirt
b.$11.60 per shirt
c.$69.60 per shirt
d.$58.00 per shirt

Answer 1

The variable cost per shirt can be calculated using the contribution margin ratio. The variable cost per shirt for Fruity Pebbles Apparel is $46.40.

Step-by-step explanation:

The variable cost per shirt can be calculated using the contribution margin ratio. The contribution margin ratio is the percentage of each sale that contributes to covering the fixed costs and generating profit. In this case, the contribution margin ratio is 20%.

To calculate the variable cost per shirt, we can use the formula: Variable cost per shirt = Selling price per shirt - Contribution margin per shirt.

Given that the selling price per shirt is $58.00 and the contribution margin ratio is 20%, the contribution margin per shirt can be calculated as $58.00 * 20% = $11.60.

Therefore, the variable cost per shirt is $58.00 - $11.60 = $46.40.