Peeler's Smoothie Company has provided the following information: Sales price per unit $6.50 Variable cost per unit $2.00 Fixed costs per month $1,500 Calculate the contribution margin ratio. (Round your answer to two decimal places.)

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TomShelby TomShelby · Answer 1 · 2019-07-19T19:57:22+02:00

Answer:

contribution margin ratio. = 0.62

Explanation:

The first concep to define would be contribution margin:

[tex]Sales Revenue - Variable Cost = Contribution Margin[/tex]

Contribution margin is the amount left after deducing the variable cost.

Now the Contribution Margin ratio would be:

[tex]\frac{Contribution Margin}{Sales Revenue}= $Contribution Margin Ratio[/tex]

This represent how much is left per dollar of sale

So a ratio of 0.25 means that per every dollar of sales, the business generates 0.25 cent of contribution

Now that we got this clear, we proceed with the calculation:

[tex]6.50 - 2 = 4.5 $ Contribution Margin[/tex]

[tex]\frac{4}{6.5} = 0.6154 $Contribution Margin Ratio[/tex]

The fixed cost are irrelevant for this calculations.