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If the selling price is $250 and the variable cost is $150, what is the contribu

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Question: If the selling price is $250 and the variable cost is $150, what is the contribution margin ratio?

Options:

  1. 40%
  2. 50%
  3. 60%
  4. 70%

Correct Answer: 60%

Solution: 

Contribution Margin = Selling Price - Variable Cost = $250 - $150 = $100. Contribution Margin Ratio = Contribution Margin / Selling Price = $100 / $250 = 0.4 or 40%.

If the selling price is $250 and the variable cost is $150, what is the contribu

Practice Questions

Q1
If the selling price is $250 and the variable cost is $150, what is the contribution margin ratio?
  1. 40%
  2. 50%
  3. 60%
  4. 70%

Questions & Step-by-Step Solutions

If the selling price is $250 and the variable cost is $150, what is the contribution margin ratio?
  • Step 1: Identify the selling price, which is $250.
  • Step 2: Identify the variable cost, which is $150.
  • Step 3: Calculate the contribution margin by subtracting the variable cost from the selling price: $250 - $150 = $100.
  • Step 4: Calculate the contribution margin ratio by dividing the contribution margin by the selling price: $100 / $250.
  • Step 5: Simplify the fraction: $100 / $250 = 0.4.
  • Step 6: Convert the decimal to a percentage by multiplying by 100: 0.4 * 100 = 40%.
  • Contribution Margin – The difference between selling price and variable cost, indicating how much revenue is available to cover fixed costs and profit.
  • Contribution Margin Ratio – The contribution margin expressed as a percentage of the selling price, showing the proportion of sales that contributes to fixed costs and profit.
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