Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin ratio?

The firm's contribution margin ratio is 62.5%

Explanation:

Contribution margin is the net of selling price and variable cost. It is the net return available to cover the fixed cost and make profit. Contribution margin ratio is the ratio of contribution margin to sale price.

According to given data

Price = $6

Variable cost = $2.25

Contribution margin = Price - variable cost = $6 - $2.25 = $3.75

Contribution margin ratio = 3.75 / 6 = 0.625 = 62.5%