Question

If Intervale ​Railway's fixed costs total $ 90,000 per​ month, the variable cost per passenger is $ 45​, and tickets sell for $ 75​, what is the contribution margin per unit and contribution margin​ ratio?1. $45% per passenger 60%2. $30% per passenger 60%3. $30% per passenger 40%4. $45% per passenger 40%

Answer 1

3) $30 per passenger and 40% contribution margin

Step-by-step explanation:

• the contribution margin per unit = sales price - variable costs = $75 - $45 = $30
• the contribution margin ratio = contribution margin / sales price = $30 / $75 = 40%

the contribution margin represents the incremental profit earned by each unit sold and it is very useful when you need to calculate the break even point = total fixed costs / contribution margin = $90,000 / $30 = 3,000 tickets

Answer 2

Contribution per unit is $30 while contribution margin ratio is 40%

Step-by-step explanation:

The contribution margin ration is derived with the below formula:

contribution margin ratio=margin/sales price

Margin=selling price-variable cost

Margin=$75-$45

Margin=$30

Contribution margin ratio=$30/$75

Contribution margin ration=40%

The contribution determines the to which the company can recover its fixed costs as well as make profits.

The contribution margin ratio shows margin as a percentage of sales price.A contribution margin ratio of 40% implies that variable cost is 60% of selling price,hence the balance of 40% is available to settle fixed costs and profit