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 $.55 each.She also provides shampoo and conditioner for each client at a cost of $.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

First, let's calculate the variable cost per haircut:
Cost of new comb = $0.55
Cost of shampoo and conditioner = $0.95
Total variable cost per haircut = $1.50

Now, let's calculate the contribution margin per haircut:
Price per haircut = $12
Variable cost per haircut = $1.50
Contribution margin per haircut = $10.50

The contribution margin ratio is calculated by dividing the contribution margin per haircut by the price per haircut:
Contribution margin ratio = ($10.50 / $12) x 100% = 87.5%

Therefore, the answer is C) 87.5%.

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