An item sells for $12.00 and its food cost is $4.50. What is the contribution margin per item?

An item sells for $12.00 and its food cost is $4.50. What is the contribution margin per item?

• A. $6.00
• B. $7.00
• C. $8.00
• D. $7.50

Answer: (D)

Contribution margin per item is what’s left from the selling price after paying the variable cost per unit. Here, the item sells for 12.00 and the food cost is 4.50, so 12.00 − 4.50 = 7.50. This 7.50 goes toward covering fixed costs and contributing to profit. If you sold 100 items, that would amount to 750 available for fixed costs and profit. Remember, if there were other variable costs per item, those would reduce the margin further.

Contribution margin per item is what’s left from the selling price after paying the variable cost per unit. Here, the item sells for 12.00 and the food cost is 4.50, so 12.00 − 4.50 = 7.50. This 7.50 goes toward covering fixed costs and contributing to profit. If you sold 100 items, that would amount to 750 available for fixed costs and profit. Remember, if there were other variable costs per item, those would reduce the margin further.