Question

What is the contribution margin ratio of Adam's Sports Store?

1) 55%
2) 55
3) 0.55
4) Cannot be determined

Answer 1

The contribution margin ratio of Adam's Sports Store is 5%.

Step-by-step explanation:

The contribution margin ratio of Adam's Sports Store can be calculated by dividing the contribution margin by the sales revenue. The contribution margin is the revenue remaining after deducting variable costs from the sales revenue.

Let's assume the sales revenue of Adam's Sports Store is $1 million. The variable costs include labor, capital, and materials, which amount to $600,000 + $150,000 + $200,000 = $950,000.

Therefore, the contribution margin is $1,000,000 - $950,000 = $50,000. To find the contribution margin ratio, we divide the contribution margin by the sales revenue: $50,000 ÷ $1,000,000 = 0.05 or 5%.