Contribution to Sales Ratio

Steps:

• Calculate contribution per unit: selling price minus variable cost ($20.00 -$12.50 = $7.50).
• Divide contribution by selling price ($7.50 /$20.00 = 0.375).
• Convert to percentage (0.375 × 100% = 37.5%).

Why B is correct:

• Contribution to sales ratio is (contribution per unit / selling price) × 100%, yielding 37.5% per the formula.

Why the others are wrong:

• A: 20% is the variable cost to sales ratio ($12.50 /$20.00 × 100%).
• C: 62.5% incorrectly uses variable cost over contribution.
• D: 80% overstates by ignoring variable costs entirely.

Final answer: B