A product has a marginal cost of $8 and a selling price of $12. What is the cont
Practice Questions
Q1
A product has a marginal cost of $8 and a selling price of $12. What is the contribution margin ratio?
33.33%
25%
40%
50%
Questions & Step-by-Step Solutions
A product has a marginal cost of $8 and a selling price of $12. What is the contribution margin ratio?
Step 1: Identify the selling price of the product, which is $12.
Step 2: Identify the marginal cost of the product, which is $8.
Step 3: Calculate the contribution margin by subtracting the marginal cost from the selling price: $12 - $8 = $4.
Step 4: Calculate the contribution margin ratio by dividing the contribution margin by the selling price: $4 / $12.
Step 5: Convert the result into a percentage by multiplying by 100: (4 / 12) * 100 = 33.33%.
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 - Marginal Cost) / Selling Price.
