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Math  /  Algebra

QuestionQuestion Y (2 points) For the last year, Herlo Inc. has been selling their special starter Surfer Kit for $500.00\$ 500.00, providing the store with a 40%40 \% contribution margin. This month, Herlo Inc. decided to have a special sales event. During this special sales event, Herlo will be selling the Surfer Kit for $400.00\$ 400.00. Assuming that their variable costs remain the same, what is Herlo's contribution margin (\%) during the special sales event? 40\% 35\% 50\% 25\%

Studdy Solution

STEP 1

1. The original selling price of the Surfer Kit is 500.00.<br/>2.Theoriginalcontributionmarginis40500.00.<br />2. The original contribution margin is 40%.<br />3. The special sales event selling price is 400.00.
4. Variable costs remain the same during the special sales event.
5. We need to find the new contribution margin percentage during the special sales event.

STEP 2

1. Calculate the original variable cost.
2. Determine the variable cost for the special sales event.
3. Calculate the contribution margin during the special sales event.
4. Determine the contribution margin percentage during the special sales event.

STEP 3

Calculate the original variable cost.
The contribution margin is given as 40%, which means 40% of the selling price is the contribution margin. Therefore, the variable cost is 60% of the selling price.
Original selling price = $500.00
Variable cost = 60%×500=0.60×500=300 60\% \times 500 = 0.60 \times 500 = 300

STEP 4

Determine the variable cost for the special sales event.
Since the variable costs remain the same, the variable cost during the special sales event is also $300.

STEP 5

Calculate the contribution margin during the special sales event.
Special sales event selling price = $400.00
Contribution margin = Selling price - Variable cost
Contribution margin = 400−300=100 400 - 300 = 100

STEP 6

Determine the contribution margin percentage during the special sales event.
Contribution margin percentage = (Contribution marginSelling price)×100 \left( \frac{\text{Contribution margin}}{\text{Selling price}} \right) \times 100
Contribution margin percentage = (100400)×100=25% \left( \frac{100}{400} \right) \times 100 = 25\%
The contribution margin during the special sales event is:
25% \boxed{25\%}

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