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Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

Sales $ 3,240,000
Variable expenses 1,620,000
Contribution margin 1,620,000
Fixed expenses 180,000
Net operating income $ 1,440,000

What is the product's CM ratio?

Respuesta :

Answer:

50%

Explanation:

Given: Selling price= $120 per unit.

          Variable cost= $60 per unit.

First computing contribution margin.

Contribution margin= [tex]Selling\ price\ per\ unit - variable\ cost\ per\ unit[/tex]

⇒ Contribution margin= [tex]\$120 - \$ 60[/tex]

∴ Contribution margin=  [tex]\$ 60[/tex]

Now, calculating the contribution margin ratio.

Contribution margin ratio= [tex]\frac{Contribution\ margin}{selling\ price\ per\ unit}[/tex]

⇒ Contribution margin ratio= [tex]\frac{\$ 60}{\$ 120} \times 100[/tex]

∴ Contribution margin ratio= [tex]50\%[/tex]

Hence, the product´s contribution ratio is 50%.