Question

Boswell company reported the following information for the current year: Sales (50,000

units) $1,000,000, direct materials and direct labor $500,000, other variable costs
$50,000, and fixed costs $270,000. What is Boswell's contribution margin ratio?
A) 68%.
B) 45%.
C) 32%.
D) 55%.

Answer 1

The contribution margin ratio is 18%. The ratio is calculated by dividing the contribution margin by the sales revenue.

Step-by-step explanation:

The contribution margin ratio is calculated by dividing the contribution margin by the sales revenue. The contribution margin is the difference between the sales revenue and the variable costs. In this case, the direct materials and direct labor, other variable costs, and fixed costs are considered as total variable costs. So the contribution margin can be calculated as:

Contribution Margin = Sales Revenue - Total Variable Costs

Contribution Margin = $1,000,000 - ($500,000 + $50,000 + $270,000)

Contribution Margin = $1,000,000 - $820,000

Contribution Margin = $180,000

The contribution margin ratio is then:

Contribution Margin Ratio = (Contribution Margin / Sales Revenue) * 100

Contribution Margin Ratio = ($180,000 / $1,000,000) * 100

Contribution Margin Ratio = 18%

Therefore, the correct answer is not provided in the options. The contribution margin ratio for Boswell's company is 18%.