Final answer:
The total variable costs must have been $1,125,000, as calculated by first finding total revenues using the contribution margin and contribution margin ratio, and then subtracting the contribution margin from total revenues.
Step-by-step explanation:
If a company had a contribution margin of $750,000 and a contribution margin ratio of 40%, we can determine the total variable costs using the formula for contribution margin (CM):
CM = Total Revenues - Total Variable Costs
The contribution margin ratio is calculated by dividing the contribution margin by total revenues:
Contribution Margin Ratio = Contribution Margin / Total Revenues
We can rearrange this formula to solve for total revenues:
Total Revenues = Contribution Margin / Contribution Margin Ratio
By plugging in the given numbers:
Total Revenues = $750,000 / 0.40
Total Revenues = $1,875,000
Now, to find the total variable costs, we subtract the contribution margin from total revenues:
Total Variable Costs = Total Revenues - Contribution Margin
Total Variable Costs = $1,875,000 - $750,000
Total Variable Costs = $1,125,000
Therefore, the total variable costs must have been $1,125,000, which corresponds to option A).