Pam's Puppy Parlor is a pet grooming parlor and boutique.Pam sells personalized puppy blankets at $20 each.Her contribution margin is $5.If Pam has an additional $100 in blanket sales, how much will her profit increase?
A)$5
B)$25
C)$50
D)$100

Question

Quizplus · Accepted Answer

The profit increase is calculated by the contribution margin ratio, which is the contribution margin per unit divided by the sale price per unit. Here, the contribution margin is $5 for each $20 sale, so the contribution margin ratio is $5/$20 = 0.25 or 25%. Therefore, an additional $100 in sales would increase profit by 25% of $100, which is $25.

Pam's Puppy Parlor Is a Pet Grooming Parlor and Boutique