Question

If a company had a contribution margin of $1,000,000 and a contribution margin ratio of 40%, total variable costs must have been Group of answer choices $1,500,000. $600,000. $2,500,000. $400,000.

Answer 1

the total variable cost is $1,500,000

Step-by-step explanation:

The computation of the total variable cost is shown below:

As we know that

Contribution margin ratio = Contribution margin ÷ Sales

So,

40% = $1,000,000 ÷ Sales

So,

Sales = $1,000,000 ÷40%

= $2,500,000

Now

Variable cost = Sales - Contribution margin

= $2,500,000 - $1,000,000

= $1,500, 000

Hence, the variable cost is $1,500,000