Jenny's Cutting Station is a new concept in haircuts; low cost and very quick.Set in a local mall, Jenny's offers 15-minute haircuts for harried shoppers who do not have time for lengthy appointments.To ensure that the clients are in and out quickly, she schedules her 5 employees based on expected client traffic.Each of the employees is paid $1,200 per month, with part of their pay coming from client tips.Jenny pays rent and overhead costs of $2,000 per month.Because of the quick nature of the service, Jenny doesn't have time to clean combs in between clients, so she uses a new comb for each customer, at a cost of $0.55 each.She also provides shampoo and conditioner for each client at a cost of $0.95 per client.The average price for a haircut is $12.Jenny pays herself $5,000 per month.What is Jenny's contribution margin ratio?
A)12.5%
B)83.5%
C)87.5%
D)8.3%

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated by subtracting variable costs from revenue and dividing by revenue.

Revenue per unit: $12 
Variable costs per unit: $0.55 + $0.95 = $1.50 
Contribution margin per unit: $12 - $1.5 = $10.5

Contribution margin ratio: ($10.5 ÷ $12) x 100 = 87.5%

Therefore, the answer is C) 87.5%.

Jenny's Cutting Station Is a New Concept in Haircuts; Low