Question

Anthony Herrera recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $5.38 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 $2.71 per person. Anthony employs three part-time instructors and pays them each $1,228 per month. He also pays himself a monthly salary of $4,336. Anthony’s other monthly costs are $1,684 for rent, $1,414 for depreciation on his 34 bikes, and $1,868 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

$Enter contribution margin in dollars per unit

per unit

(b) What is Anthony’s contribution margin ratio? (Round answer to 2 decimal places, e.g. 52.75.)

Contribution margin ratio

Enter contribution margin ratio in percentages

%

Answer 1

(a)contribution margin per unit = sales price - variable cost

= 5.38 - 2.71

= 2.67 per unit

(b)Contribution margin % = contribution margin per unit*100/sales price

= 2.67*100/5.38

= 49.63%