A product has a selling price of $80 and variable costs of $50. What is the cont

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Question: A product has a selling price of $80 and variable costs of $50. What is the contribution margin ratio?

Options:

Correct Answer: 62.5%

Solution:

Contribution margin ratio = (Selling price - Variable costs) / Selling price = ($80 - $50) / $80 = $30 / $80 = 37.5%.

A product has a selling price of $80 and variable costs of $50. What is the contribution margin ratio?

A product has a selling price of $80 and variable costs of $50. What is the contribution margin ratio?

Step 1: Identify the selling price of the product, which is $80.
Step 2: Identify the variable costs of the product, which are $50.
Step 3: Calculate the contribution margin by subtracting the variable costs from the selling price: $80 - $50.
Step 4: The result of the subtraction is $30, which is the contribution margin.
Step 5: To find the contribution margin ratio, divide the contribution margin ($30) by the selling price ($80): $30 / $80.
Step 6: Calculate the division: $30 divided by $80 equals 0.375.
Step 7: Convert the decimal to a percentage by multiplying by 100: 0.375 * 100 = 37.5%.

Contribution Margin Ratio – The contribution margin ratio measures the percentage of each sales dollar that contributes to covering fixed costs and generating profit, calculated as (Selling Price - Variable Costs) / Selling Price.