Question

If sales are $822,000, variable costs are 79% of sales, and operating income is $244,000, what is the contribution margin ratio? a.75% b.25% c.21% d.79%

Answer 1

c.21%

Step-by-step explanation:

The computation of the contribution margin ratio is shown below

Sales is $822,000

Variable cost ratio 79% of sales

So,

Variable cost (79% of $822,000 ) $649,380

Now contribution margin is

= Sales - variable cost

= $822,000 - $649,380

= $172,620

Now

Contribution margin ratio is

= Contribution ÷ Sales × 100

= $172,620 ÷ $822,000 × 100

= 21%

Therefore the option c is correct