Question

Question 3 View Policies Current Attempt in Progress Anthony Herrera recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $5.50 per person. To differentiate his gym and better serve his clients, Anthony provides a towel, a bottle of water, and an after-workout protein shake to each person participating in a class, at a cost of $2.63 per person. Anthony employs three part-time instructors and pays them each $1,398 per month. He also pays himself a monthly salary of $4,100. Anthony's other monthly costs are $1,500 for rent. $1.350 for depreciation on his 32 bikes, and $1,800 in utilities and insurance. (a) What is Anthony's contribution margin per unit? (Round answer to 2 decimal places, e.g. 52.75.) Contribution margin $ per unit (b) What is Anthony's contribution margin ratio? (Round answer to 2 decimal places, eg. 52.75.) Contribution margin ratio

Answer 1

Solution:

a)

Sales Price	$ 5.5
Less: Variable costs
Towel, Water Bottle, Protein shake	$ 2.63
Contribution margin	$ 2.87

Contribution margin = $ 2.87 per unit

b) Contribution margin ratio = Contribution margin / Sales price x 100

= 2.87 / 5.5 x 100 = 52.18%

Contribution margin ratio = 52.18%

c) Contribution margin monthly income statement:

Sales ($ 5.5 x 5000)	$ 27,500
Less: Variable costs ($ 2.63 x 5000)	$ 13,150
Contribution margin	$ 14,350
Less: Fixed costs
Salaries [(3 x $1398) + $ 4,100]	$ 8,294
Rent	$ 1,500
Depreciation	$ 1,350
Utilities and insurance	$ 1,800
Net Income	$ 1,406