Question

A vendor sells hotdogs at $15 /piece. For every hot dog he spends $12 in the raw material. Additionally he spends $1 for packing each hotdog and monthly $50, $20, $10 as food truck rent, electricity and other expenses respectively. How much is the vendor contributing to covering his fixed costs or generating profits?
a) 3
b) 2
c) 6
d) 5

Answer 1

Contribution margin per hotdog = selling price − variable costs per unit.

Variable costs = $12 (raw material) + $1 (packing) = $13.

Contribution = $15 − $13 = $2.

Answer: b) 2