Metrics 4.docx

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21 Apr 2012
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Worksheet: Metric 4 Contribution Margin
1) Mohan, an artist, draws caricatures on the waterfront pier. It costs him
approximately $5 in materials (paper and markers) for each caricature he
makes. He sells each caricature for $20. Calculate the contribution margin in
terms of dollars and percent.
Answer:
Contribution Margin ($) = Revenue COGS
= $20 - $5
= $15
Contribution Margin (%) = [Contribution per Unit ($) /
Sale Price per Unit ($)] * 100%
= [(Sale Price per Unit Variable Cost per Unit) /
Sale Price per Unit] *100%
= [($20 - $5) / $20] * 100%
= [$15 / $20] * 100%
= 0.75 * 100%
= 75%
2) The Hotel Grill Bar sells a set lunch for $12. The food cost of sales used in
producing each set lunch is $5. Additional variable costs are $3 per lunch.
The fixed costs of the restaurant are $3 per meal. What is the contribution
margin expressed in dollars and percent?
Variable Expenses = $5 + $3
= $8
Contribution Margin ($) = Revenue Variable Expense
= $12 - $8
= $4
Contribution Margin (%) = [Contribution per Unit ($) /
Sale Price per Unit ($)] * 100%
= [(Sale Price per Unit Variable Cost per Unit) /
Sale Price per Unit] * 100%
= [($12 - $8) / $12] * 100%
= $4 / $12 * 100%
= 0.33 * 100%
= 33.3%
3) You are an online retailer of CDs, promoting sales via a ‘no postage and
packaging’ offer. You purchase your CDs from record companies for $18.75.
Packaging and a padded envelope cost $1.00 per CD; and postage is $2.00. If
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