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A product has a marginal cost of $8 and a selling price of $12. What is the cont

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Question: A product has a marginal cost of $8 and a selling price of $12. What is the contribution margin ratio?

Options:

  1. 33.33%
  2. 25%
  3. 40%
  4. 50%

Correct Answer: 33.33%

Solution: 

Contribution margin ratio = (Selling price - Marginal cost) / Selling price = ($12 - $8) / $12 = 33.33%.

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?
  1. 33.33%
  2. 25%
  3. 40%
  4. 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.
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