Question

Anthony Herrera recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $5.42 per person. To differentiate his gym and better serve his clients, Anthony provides a towel, a bottle of water, and an after-workout protein shake to each person participating in a class, at a cost of $1.94 per person. Anthony employs three part-time instructors and pays them each $1,182 per month. He also pays himself a monthly salary of $4,100. Anthony’s other monthly costs are $1,570 for rent, $1,420 for depreciation on his 30 bikes, and $1,958 in utilities and insurance.

(a) What is Anthony’s contribution margin per unit? (Round answer to 2 decimal places, e.g. 52.75.)
(b) What is Anthony's contribution margin ratio?

Answer 1

(a) $3.48 per unit

(b) 64.2%

Step-by-step explanation:

(a) Anthony’s contribution margin per unit:

= Selling price per unit - Variable cost per unit

= $5.42 - $1.94

= $3.48 per unit

Therefore, the Anthony’s contribution margin per unit is $3.48 per unit.

(b) Anthony's contribution margin ratio:

= (Contribution Margin Per unit ÷ Selling Price per unit) × 100

= ($3.48 per unit ÷ $5.42 per unit) × 100

= 0.6420 × 100

= 64.20%

Therefore, the Anthony's contribution margin ratio is 64.2%.