Choice Creations,Inc.sells hand sewn shirts at $58.00 per shirt.It incurs monthly fixed costs of $8000.The contribution margin ratio is calculated to be 30%.What is the variable cost per shirt? (Round any intermediate calculations and your final answer to two decimal places.)

Question

Quizplus · Accepted Answer

We know that the contribution margin ratio is 30%, which means that 70% of the sales revenue is used to cover the variable and fixed costs.

Contribution Margin Ratio = (Price - Variable Cost) / Price 
30% = (58 - Variable Cost) / 58 
0.3 * 58 = 58 - Variable Cost 
17.4 = Variable Cost

Therefore, the variable cost per shirt is $17.40.