If Intervale Railway's fixed costs total $ 90,000 per month, the variable cost per passenger is $ 45 , and tickets sell for $ 75 , what is the contribution margin per unit and contribution margin ratio?1. $45% per passenger 60%2. $30% per passenger 60%3. $30% per passenger 40%4. $45% per passenger 40%

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Business

Jean Erickson

4 November, 10:10

If Intervale Railway's fixed costs total $ 90,000 per month, the variable cost per passenger is $ 45 , and tickets sell for $ 75 , what is the contribution margin per unit and contribution margin ratio?1. $45% per passenger 60%2. $30% per passenger 60%3. $30% per passenger 40%4. $45% per passenger 40%

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Deandre Mcdowell · Answer 1

Contribution per unit is $30 while contribution margin ratio is 40%

Explanation:

The contribution margin ration is derived with the below formula:

contribution margin ratio=margin/sales price

Margin=selling price-variable cost

Margin=$75-$45

Margin=$30

Contribution margin ratio=$30/$75

Contribution margin ration=40%

The contribution determines the to which the company can recover its fixed costs as well as make profits.

The contribution margin ratio shows margin as a percentage of sales price. A contribution margin ratio of 40% implies that variable cost is 60% of selling price, hence the balance of 40% is available to settle fixed costs and profit