Question

Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be​ 50,000 units at​ $5.00/unit. Below is a listing of estimated expenses. Category Total Annual Expenses ​% of Annual Expense that are Fixed Materials ​$50,000 ​10% Labor ​$90,000 ​20% Overhead ​$40,000 ​30% ​Marketing/Admin ​$20,000 ​50% A Canadian firm was contracted to sell the product and will receive a commission of​ 10% of the sales price. No U.S. home office expenses will be allocated to the new facility. The contribution margin ratio for Garfield Corporation is

Answer 1

Contribution Margin Ratio = 0.33

Step-by-step explanation:

Our first goal:

Calculate the Contribution margin:

`(Contribution Margin)/(Sales Revenue) = $Contribution Margin Ratio`

Sales 50,000 * 5$ = 250,000

Variable Expenses

Materials 50,000 (1-10%) = 45,000

Labor 90,000 (1-20%) = 72,000

Overhead 40,000 (1-30%) = 28,000

M&Admin 20,000 (1-50%) = 10,000

Sales Commision 250,000 5% =12,500

Total Variable Cost = 167,500

Contribution Margin 250,000-167,500 = 82,500

Notice in your table you have the percent of fixed cost per line, so the rest is variable cost.

Now we calculate the CM ratio

`(82,500)/(250,000) = 0.33`