Question

Duck Manufacturing sells rubber rain boots for $52 per pair. If Duck’s total fixed costs are $360,000 and the firm must sell 18,000 pairs of boots to break even, then what is the contribution margin ratio? Round your answer to the nearest tenth.

Answer 1

38.5%

Step-by-step explanation:

we need to find out the contribution margin using the break even point formula:

break even point in units = total fixed costs / contribution margin

contribution margin = total fixed costs / break even point in units

contribution margin = $360,000 / 18,000 units = $20

contribution margin ratio = contribution margin / sales price = $20 / $52 = 38.5%

The contribution margin ratio measures the difference between a company's sales price and its variable expenses per unit.

Answer 2

Contribution margin ratio is 38%

Step-by-step explanation:

The contribution margin ration is the ratio of contribution over sales revenue.

The contribution in this parlance is difference between the sales revenue and variable costs.

Contribution=sales-variable costs

sales =volume * price

volume is 18000 pairs

price per unit is $52

However the variable is not given

Break-even units=fixed costs/(sales price-variable cost)

let variable cost per unit to be x

18000=360,000/(52-x)

(52-x)*18000=360000

52-x=360000/18000

52-x=20

x=52-20

x=32

contribution=52-32

contribution =$20

contribution margin ratio=20/52

=0.38 or 38%