Garrison Company provides the following information about its product: What is the contribution-margin ratio?

Question

Garrison Company provides the following information about its product:  What is the contribution-margin ratio?

Quizplus · Accepted Answer

The contribution margin is the difference between the selling price and the variable cost per unit. From the given information, the selling price per unit is $30 and the variable cost per unit is $7. Therefore, the contribution margin per unit is $23 ($30 - $7). The contribution-margin ratio is calculated by dividing the total contribution margin by the total sales revenue. We don't have the total sales revenue given in the information. Therefore, we cannot calculate the exact contribution-margin ratio. However, we can eliminate answer choices A), B), and C) as they are either too low or too high to be plausible. Answer choice D) provides a more reasonable contribution-margin ratio of 75% considering the typical range of contribution-margin ratios for most businesses.

Garrison Company Provides the Following Information About Its Product