Question

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

Sales $ 3,240,000
Variable expenses 1,620,000
Contribution margin 1,620,000
Fixed expenses 180,000
Net operating income $ 1,440,000

What is the product's CM ratio?

Answer 1

50%

Step-by-step explanation:

Given: Selling price= $120 per unit.

Variable cost= $60 per unit.

First computing contribution margin.

Contribution margin=
`Selling\ price\ per\ unit - variable\ cost\ per\ unit`

⇒ Contribution margin=
`\$120 - \$ 60`

∴ Contribution margin=
`\$ 60`

Now, calculating the contribution margin ratio.

Contribution margin ratio=
`(Contribution\ margin)/(selling\ price\ per\ unit)`

⇒ Contribution margin ratio=
`(\$ 60)/(\$ 120) * 100`

∴ Contribution margin ratio=
`50\%`

Hence, the product´s contribution ratio is 50%.