Anthony Herrera recently fulfilled his long-time dream of opening a gym that off
ID: 2427862 • Letter: A
Question
Anthony Herrera recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for $5.85 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 $1.78 per person. Anthony employs three part-time instructors and pays them each $1,266 per month. He also pays himself a monthly salary of $4,078. Anthony’s other monthly costs are $1,628 for rent, $1,302 for depreciation on his 34 bikes, and $1,826 in utilities and insurance. Required
a. What is Anthony's contribution margin per unit?
b. What is Anthony's contribution margin ratio?
c. Prepare Anthony’s monthly contribution format income statement assuming he teaches 5,270 clients.
Explanation / Answer
a.contribution margin per unit=Revenue per person-Cost per person
=5.85-1.78=4.07
b.Contribution margin ratio= Contribution/Revenue x 100
=4.07/5.85 x 100
=69.57%
c.
Contribution format income statement
Sales in units
5,270
Revenue per person
5.85
Revenue
30,830
Less: Variable cost
9,381
Contribution
21,449
Less: Fixed cost
Part time instructor salary
1,266
Owner salary
4,078
Rent
1,628
Depreciation
1,302
Total fixed cost
8,274
Operating income
13,175
Contribution format income statement
Sales in units
5,270
Revenue per person
5.85
Revenue
30,830
Less: Variable cost
9,381
Contribution
21,449
Less: Fixed cost
Part time instructor salary
1,266
Owner salary
4,078
Rent
1,628
Depreciation
1,302
Total fixed cost
8,274
Operating income
13,175
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