Question

Sheffield Corp. reported the following information for the current year: Sales (45000 units) $900000, direct materials and direct labor $450000, other variable costs $45000, and fixed costs $360000. What is Sheffield’s contribution margin ratio?

Answer 1

Answer: Contribution Margin ratio = 45%

Step-by-step explanation:

Given that,

Sales (45000 units) = $900000

Direct materials and Direct labor = $450000

Other variable costs = $45000

Fixed costs = $360000

Variable Cost = Direct materials and Direct labor + Other variable costs

= $450000 + $45000

= $495000

Contribution Margin = Sales - Variable Cost

= $900000 - $495000

= $405000

∴ Contribution margin ratio =
`(Contribution Margin)/(Sales)`

=
`(405000)/(900000)`

= 45%

Answer 2

The Sheffield’s contribution margin ratio is 45%

Step-by-step explanation:

The formula to compute the contribution margin ratio is shown below:

Contribution margin ratio = Contribution margin ÷ Sales

where,

Contribution margin = Sales - variable cost

The variable cost includes

= Direct material & Direct labor + Other variable cost

= $450,000 + $45,000

= $495,000

And, the sales is $900,000

So, the contribution margin is equals to

= $900,000 - $495,000

= $405,000

Thus , the contribution margin ratio is equals to

= $405,000 ÷ $900,000

= 45%

The fixed cost is not considered in the computation part. So, it is not taken

Hence, the Sheffield’s contribution margin ratio is 45%