A product sells for $150 and has variable costs of $90. What is the contribution

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Question: A product sells for $150 and has variable costs of $90. What is the contribution margin ratio?

Options:

Correct Answer: 60%

Solution:

Contribution Margin Ratio = (Selling Price - Variable Costs) / Selling Price = ($150 - $90) / $150 = 0.40 or 40%.

A product sells for $150 and has variable costs of $90. What is the contribution margin ratio?

A product sells for $150 and has variable costs of $90. What is the contribution margin ratio?

Step 1: Identify the selling price of the product, which is $150.
Step 2: Identify the variable costs associated with the product, which are $90.
Step 3: Calculate the contribution margin by subtracting the variable costs from the selling price: $150 - $90.
Step 4: Perform the subtraction: $150 - $90 = $60. This is the contribution margin.
Step 5: Calculate the contribution margin ratio by dividing the contribution margin by the selling price: $60 / $150.
Step 6: Perform the division: $60 / $150 = 0.40.
Step 7: Convert the ratio to a percentage by multiplying by 100: 0.40 * 100 = 40%.

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.