Question

Major E. has just opened a cooking school focusing on basic meals for new cooks. Each student pays $15 per class and receives all the ingredients necessary to prepare dinner for two using the recipes demonstrated in the class. Major's cost to provide the ingredients is $6.00 per student. To give his students hands-on help, Major employs two assistants for each class and pays each of them $1,200 per month. Major's monthly salary is $1,800. The depreciation on equipment is $1,000 per month and utilities and insurance are $240 per month. What is Major's contribution margin ratio?

a. 40%
b. 150%
c. 60%
d. 67%

Answer 1

Major's contribution margin ratio is calculated by dividing the contribution margin per student ($9) by the selling price per class ($15), resulting in a contribution margin ratio of 60%. Correct option is c.

Step-by-step explanation:

To calculate Major's contribution margin ratio, we need to first find his contribution margin per student, which is the selling price per class minus the variable cost per student. The selling price is given as $15, and the variable cost, which is the cost to provide ingredients, is $6.

Therefore, the contribution margin per student is $15 - $6 = $9. The contribution margin ratio is then found by dividing the contribution margin per student by the selling price per class. So, the contribution margin ratio is $9 / $15 = 0.6, or 60%. This means that for every dollar Major earns in sales, he retains 60 cents after covering his variable costs.