Question

Our company sells a single product for $40 per unit. If variable expenses are 75% of sales and fixed expenses total $25,000, the CM ratio would be 25%. Can you please explain how they arrived at the CM ratio?

Answer 1

Ans.	Variable expenses per unit = Selling price per unit * Variable expenses ratio
	$40 * 75%
	$30	per unit
	Contribution margin per unit = Selling price per unit - Variable cost per unit
	$40 - $30
	$10	per unit
	Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100
	$10 / $40 * 100
	25%
	Alternative Method:
	If variable expenses ratio is 75% of sales then the contribution margin ratio
	will be 25% of sales because contribution margin is the difference between sales
	and variable expenses.