Question

Given below are two independent scenarios: a. Dream Co. has budgeted sales of $500,000, fixed costs are $240,000, and variable costs are $375,000. What is its contribution margin ratio? Enter the percentage amount as a whole number (for example, enter 10% as "10"). % b. Pearl Company has sales of $825,000, variable costs are 30% of sales, and fixed costs are $360,000. What is its operating profit? $

Answer 1

a. 25

b. $217,500

Step-by-step explanation:

Contribution Margin Ratio = Contribution / Sales × 100

= ($500,000 - $375,000) / $500,000 × 100

= 25.00% or 25

Income statement for Pearl Company

Sales $825,000

Less Variable Cost ($247,500)

Contribution $577,500

Less Fixed Costs ($360,000)

Operating Profit $217,500