Question

View Policies Current Attempt in Progress Brian Lee recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $10 per person. To differentiate his gym and better serve his clients, Brian provides a towel, a bottle of water, and an after-workout protein shake to each person participating in a class, at a cost of $1.94 per person. Brian employs four part-time instructors and pays them each $2,900 per month. He also pays himself a monthly salary of $7,400. Brian's other monthly costs are $3,400 for rent, $2,200 for depreciation on his 34 bikes, and $1,875 in utilities and insurance. (a) What is Brian's contribution margin per unit? (Round answer to 2 decimal places, e.g. 52.75.) Contribution margin $ per unit (b) What is Brian's contribution margin ratio? (Round answer to 2 decimal places, e.g. 52.75.) Contribution margin ratio %

Answer 1

Answer to question number (a) - Brian Lee's contribution margin per unit

Formula for calculating contribution margin is as follows

Net Sales/Revenue - Variable cost = Contribution Margin

Here Brian Lee collecting $ 10 per person for a spinning excercise classes and incurring a expense of $ 1.94 per person to serve a towel, bottle of water and a shake which is variable cost in this case.

So Contribution Margin of Brian's is $10 - $ 1.94 = $ 8.06 per person.

Answer to question number (b) - Brian's Contribution Margin Ratio

Formula for calculating contribution margin ratio is as follows

(Contribution Margin per unit divided by Sales or Revenue per unit) multiplied by 100 = Contribution Margin Ratio

So Contribution margin ration of Brian's = ($ 8.06 / $ 10) X 100 = 80.6 %

Answer to question number (C) - Brian's Monthly Contribution Income Statement

The monthly contribution income statement is given below

	Particulars		Total Amount in $	Per unit in $
A	Revenue from Spinning Exercise classes from 5900 clients		59000	10
B	Less : Cost of Towel, a Bottle of water and after workout protein shake provided for 5900 clients		11446	1.94
C	Contribution Margin (A - B)		47554	8.06
D	Less : Fixed Cost
	Salary of 4 Part time trainers for $ 2900 each	11600
	Brian's Monthly salary	7400
	Rent	3400
	Deprication	2200
	Utilities and Insurance	1875
	Total Fixed Cost		26475
E	Net income from spinning excercise class (C - D)		21079