Question

In June, Blossom Salon gave 2,500 haircuts, shampoos, and permanents at an average price of $45. During the month, fixed costs were $21,375 and variable costs were 75% of sales. (a) Your answer has been saved. See score details after the due date. Determine the contribution margin in dollars, per unit, and as a ratio.

Answer 1

In the given scenario, 75% of the revenue is spent again in the resort city. This implies that 75% of the previous spending is added to the next round of spending. Therefore, the common ratio (r) is 0.75.

The first term (a) is $100 million, as given.

Now, let's write the geometric series for the total amount of spending:

S = a + ar + ar^2 + ar^3 + ...

Substituting the values:

S = $100 million + ($100 million)(0.75) + ($100 million)(0.75)^2 + ($100 million)(0.75)^3 + ...

To find the sum of the series, we can use the formula for the sum of an infinite geometric series:

S = a / (1 - r)

Substituting the values:

S = $100 million / (1 - 0.75)

Simplifying:

S = $100 million / 0.25

S = $400 million

Therefore, the correct total amount of spending generated by the $100 million is $400 million.