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Which of the following is the correct calculation for the contribution margin ratio?

a) Sales revenue divided by contribution margin.
b) Sales revenue divided by variable costs.
c) Contribution margin divided by sales revenue.
d) Contribution margin divided by variable costs.

1 Answer

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Final answer:

The right calculation for the contribution margin ratio is found by dividing the contribution margin by sales revenue, which indicates the percentage of each sales dollar contributing to covering fixed costs and profit.

Step-by-step explanation:

The correct calculation for the contribution margin ratio is c) Contribution margin divided by sales revenue. The contribution margin is computed by subtracting variable costs from sales revenue, and then the contribution margin ratio is calculated by dividing this remainder (the contribution margin) by the total sales revenue. This ratio gives us an indication of the percentage of each sales dollar that contributes to covering fixed costs and generating profit.

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