Four Alarm Company, a producer of salsa, has the following information: $$\begin{array} { l l }
\text { Income tax rate } & 30 \% \
\text { Selling pric e per unit } & \$ 5.00 \
\text { Variable cost p er unit } & \$ 3.00 \
\text { Total fixed costs } & \$ 90,000.00
\end{array}$$ The contribution- margin ratio is:
A) 30%
B) 100%
C) 60%
D) 40%

Question

Four Alarm Company, a producer of salsa, has the following information: $$\begin{array} { l l } 
\text { Income tax rate } & 30 \% \
\text { Selling pric e per unit } & \$ 5.00 \
\text { Variable cost p er unit } & \$ 3.00 \
\text { Total fixed costs } & \$ 90,000.00
\end{array}$$ The contribution- margin ratio is:
A) 30%
B) 100%
C) 60%
D) 40%

Quizplus · Accepted Answer

The contribution margin per unit is the selling price per unit minus the variable cost per unit, which is $5.00 - $3.00 = $2.00. The contribution margin ratio is the contribution margin per unit divided by the selling price per unit, which is $2.00 / $5.00 = 0.40 or 40%.

Four Alarm Company, a Producer of Salsa, Has the Following