Question

A jeans maker is designing a new line of jeans called Slims. The jeans will sell for $355 per pair and cost $262.70 per pair in variable costs to make. (Round your answers to 2 decimal places.)

Required:
a. Compute the contribution margin per pair.
b. Compute the contribution margin ratio.

Answer 1

The contribution margin per pair of the new Slims jeans is $92.30. The contribution margin ratio is 25.97%, which shows the portion of sales contributing to fixed costs and profit.

Step-by-step explanation:

Contribution Margin and Ratio Calculation

To calculate the contribution margin per pair of jeans, you would subtract the variable costs from the selling price. In this case:

Selling Price per pair = $355

Variable Cost per pair = $262.70

Contribution Margin per pair = Selling Price - Variable Cost = $355 - $262.70 = $92.30

The contribution margin ratio is computed by dividing the contribution margin per pair by the selling price per pair:

Contribution Margin Ratio = Contribution Margin / Selling Price = $92.30 / $355 = 0.2597 or 25.97%

This ratio indicates the percentage of each sale that is contributing to covering the fixed costs and profit.

Answer 2

a.$92.30

b.27.55%

Step-by-step explanation:

a. Computation for the contribution margin per pair

Sales 355.00 per pair

Less:Variable cost $262.70 per pair

Contribution margin $92.30 per pair

Therefore the Contribution margin per pair will be $92.30

b. Computation for the contribution margin ratio.

Using this formula

Contribution margin ratio=Contribution margin per unit/Selling price per unit

Where,

Contribution margin per unit =$92.30

Selling price per unit =$335.00

Let plug in the formula

Contribution margin ratio=$92.30/$335.00

Contribution margin ratio =27.55%

Therefore the Contribution margin ratio will be 27.55%