Plastic Gym makes children's jungle gyms and tree houses. The price of jungle gyms is $120, and its variable expenses are $90 per unit. The price of tree houses is $200, and its variable expenses are $100. Total fixed expenses are $253,750. Last year, Plastic Gym sold 12,000 gyms and 4,000 tree houses.
-Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units per year.What is the new contribution margin ratio?

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales. For the new scenario, the sales will be (12,000 x $120) + (8,000 x $200) = $2,880,000. The variable expenses will be (12,000 x $90) + (8,000 x $100) = $1,920,000. Therefore, the contribution margin will be $2,880,000 - $1,920,000 = $960,000. The contribution margin ratio will be $960,000 / $2,880,000 = 38%.

Plastic Gym Makes Children's Jungle Gyms and Tree Houses