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The contribution margin ratio is 25%. The number of units sold is 20,000 units. The selling price per unit is provided at $12 per unit. The variable cost per unit is provided at $9 per unit. The fixed costs are given at $25,000.
Sales of the company 20,000 × 12 = 240,000
The variable cost of the company is 20,000 × 9 = 180,000
Contribution margin will be 240,000 - 180,000 = 60,000
The contribution Margin ratio will be Contribution margin/ Sales ×100
60,000/240,000 ×100 = 25%.
The contribution margin is the sales amount that is not covered by the variable cost. So the contribution amount can be used to bring down the fixed costs of the company. The higher the contribution margin, the more efficient the company will be better in covering its overhead costs.
Learn more about the contribution margin ratio here:
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