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2 February, 11:32

Duck Manufacturing sells rubber rain boots for $52 per pair. If Duck's total fixed costs are $360,000 and the firm must sell 18,000 pairs of boots to break even, then what is the contribution margin ratio? Round your answer to the nearest tenth.

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  1. 2 February, 11:53
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    Contribution margin ratio is 38%

    Explanation:

    The contribution margin ration is the ratio of contribution over sales revenue.

    The contribution in this parlance is difference between the sales revenue and variable costs.

    Contribution=sales-variable costs

    sales = volume * price

    volume is 18000 pairs

    price per unit is $52

    However the variable is not given

    Break-even units=fixed costs / (sales price-variable cost)

    let variable cost per unit to be x

    18000=360,000 / (52-x)

    (52-x) * 18000=360000

    52-x=360000/18000

    52-x=20

    x=52-20

    x=32

    contribution=52-32

    contribution = $20

    contribution margin ratio=20/52

    =0.38 or 38%
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