An item sells for $8.50 and its food cost is $2.55. What is the contribution margin per item?

An item sells for $8.50 and its food cost is $2.55. What is the contribution margin per item?

• A. $5.95
• B. $6.00
• C. $3.95
• D. $4.50

Answer: (A)

The main idea is that the contribution margin per item is what each sale adds toward covering fixed costs after paying for the variable cost (the food cost) of that item. Calculate it by subtracting the variable cost from the selling price: 8.50 minus 2.55 equals 5.95. So the contribution margin per item is $5.95. This tells you how much each item contributes to fixed costs and profit after the food cost is covered. For example, if fixed costs are known, you can estimate the break-even quantity by dividing fixed costs by 5.95. The other options would come from using different subtractions or mistaken costs, not from the actual selling price minus the item’s variable cost.

The main idea is that the contribution margin per item is what each sale adds toward covering fixed costs after paying for the variable cost (the food cost) of that item.

Calculate it by subtracting the variable cost from the selling price: 8.50 minus 2.55 equals 5.95. So the contribution margin per item is $5.95.

This tells you how much each item contributes to fixed costs and profit after the food cost is covered. For example, if fixed costs are known, you can estimate the break-even quantity by dividing fixed costs by 5.95. The other options would come from using different subtractions or mistaken costs, not from the actual selling price minus the item’s variable cost.