[danambjones]

Mark Corporation produces two models of calculators. The Business model sells for 60, and the Math model sells for 40. The variable expenses are given below:

Business Math
Model Model
Variable production costs per unit $15 $16
Variable selling and administrative expenses per unit $9 $6

The fixed expenses are 75,000 per month. The expected monthly sales of each model are: Business, 1,000 units; Math, 500 units.

The contribution margin ratio for the Business model is:

(a) 60 percent
(b) 85 percent
(c) 40 percent
(d) 75 percent

Can you show me the work to get the correct answer? Thanks!

[KongTheKonqueror]

The contribution margin is the selling price minus the total variable costs.
The contribution margin ratio is the contribution margin divided by the selling price.
Make sure to include both variable production costs and variable selling costs when calculating the total variable costs.
Fixed costs and number of units sold per month can be ignored on this problem. Most problems will throw in some extra piece of information to try to mess you up.