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A company has a variable cost of $12 per unit and a selling price of $20 per uni
A company has a variable cost of $12 per unit and a selling price of $20 per unit. What is the contribution margin ratio?
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A company has a variable cost of $12 per unit and a selling price of $20 per unit. What is the contribution margin ratio?
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Contribution margin = Selling price - Variable cost = $20 - $12 = $8. Contribution margin ratio = Contribution margin / Selling price = $8 / $20 = 0.40 or 40%.
Questions & Step-by-step Solutions
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Q: A company has a variable cost of $12 per unit and a selling price of $20 per unit. What is the contribution margin ratio?
Solution:
Contribution margin = Selling price - Variable cost = $20 - $12 = $8. Contribution margin ratio = Contribution margin / Selling price = $8 / $20 = 0.40 or 40%.
Steps: 6
Show Steps
Step 1: Identify the selling price per unit, which is $20.
Step 2: Identify the variable cost per unit, which is $12.
Step 3: Calculate the contribution margin by subtracting the variable cost from the selling price: $20 - $12 = $8.
Step 4: Calculate the contribution margin ratio by dividing the contribution margin by the selling price: $8 / $20.
Step 5: Simplify the fraction: $8 / $20 = 0.40.
Step 6: Convert the decimal to a percentage by multiplying by 100: 0.40 * 100 = 40%.
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