Question

If sales are $799,000, variable costs are 75% of sales, and operating income is $222,000, what is the contribution margin ratio?

Answer 1

25%

Step-by-step explanation:

The contribution margin ratio is shown below:

Contribution margin ratio = (Contribution margin) ÷ (Sales volume) × 100

where,

Contribution margin = Sales revenue - variable cost

The variable cost is = $799,000 × 75% = $599,250

And, the sales revenue is $799,000

So, the contribution margin is

= $799,000 - $599,250

= $199,750

And, Contribution margin ratio = (Contribution margin) ÷ (Sales revenue) × 100

= $199,750 ÷ $799,000

= 25%