Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio

Question

Business

Ezequiel Erickson

2 June, 10:21

Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio

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Kelvin Lucas · Answer 1

The contribution margin ratio is 35%

Explanation:

The formula for contribution is given below:

Contribution margin = revenue - variable costs.

Contribution margin ratio is given as:

(Sales - variable expenses) : Sales

In this case, contribution is given as 1000 * ($20-$13), in other words selling price per unit minus variable cost multiplied by number of units sold.

Contribution is $7000

contribution margin ratio = $7000 / ($20*1000)

=0.35 or 35%

The implies that Hollis Industries makes a contribution of 35% per unit of output sold, hence, the contribution contributes towards covering fixed costs and making profit overall