Flow Cruiseline offers nightly dinner cruises off the coast of Miami, San Francisco, and Seattle. Dinner cruise tickets sell for $50 per passenger. Flow Cruiseline's variable cost of providing the dinner is $20 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is $270,000 per month. The company's relevant range extends to 16,000 monthly passengers.
Use this information to compute the following:
(a) What is the contribution margin per passenger?
(b) What is the contribution margin ratio?
(c) What is the contribution margin per passenger?

(a) Contribution Margin = $30 per passenger

(b) Contribution Margin Ratio = 60%

(c) Contribution Margin = $30 per passenger

Explanation:

Contribution margin is the net of sales and all the variable costs. It is the portion of sales which not used by variable costs and available for settlement of fixed cost and makes profit after that.

Contribution Margin = Selling price - variable cost

Contribution Margin = $50 - $20

Contribution Margin = $30 per passenger

Contribution margin ratio = Contribution Margin / Sales

Contribution margin ratio = $30 / $50

Contribution margin ratio = 60%

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