Question

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the following projected income statement: $88,000 23,760 $64,240 43,800 $20,440 Total variable cost Contribution margin Total fixed cost Operating income Required: 1. Calculate the contribution margin ratio. Note: Enter as a percent, rounded to the nearest whole number. 2. Calculate the variable cost ratio. Note: Enter as a percent, rounded to the nearest whole number. 3. Calculate the break-even sales revenue for Ashton. Note: Round your answer to the nearest dollar. 4. How could Ashton increase projected operating income without increasing the total sales revenue?

Answer 1

1. Contribution Margin Ratio = 73%

2. Variable Cost ratio =27%

3. Break-even Sales = $60,000

Step-by-step explanation:

Sales $88,000

Total variable cost $23,760

Contribution margin $64,240

Total Fixed Cost $43,800

Operating Income $20,440

1. Contribution Margin Ratio = Contribution margin / Sales = $64,240 / 88,000 = 73%

2. Variable Cost ratio = Variable cost / sales = $23,760 / $ 88,000 = 27%

3. Break-even Sales = Fixed Cost / Contribution margin = $43,800 / 73% = $60,000