Asked by Emily Ratliff on Jun 28, 2024
Verified
Steffen Corporation has three products with the following characteristics: The overall contribution margin ratio for the company as a whole is closest to:
A) 35.3%
B) 75.0%
C) 25.0%
D) 28.5%
Contribution Margin Ratio
A financial metric showing the percentage of sales revenue remaining after variable production costs have been deducted, indicating how much contributes towards covering fixed costs and generating profits.
- Comprehend the method and relevance of calculating the contribution margin and its corresponding ratio.
Verified Answer
ZK
Zybrea KnightJul 01, 2024
Final Answer :
C
Explanation :
The overall contribution margin ratio can be calculated as the total contribution margin divided by the total sales revenue. Without knowing the specific sales and contribution margin figures for each product, it is impossible to calculate the exact overall contribution margin ratio. However, we can make some assumptions based on the options given. The highest option is 75%, which seems unlikely if one of the products has a negative contribution margin (meaning it actually costs the company money to produce and sell). Option A is just slightly higher than option D, and option D is just slightly higher than option C. Based on this reasoning, it is safest to choose option C as the closest overall contribution margin ratio for the company.
Explanation :
Overall CM ratio = Contribution margin ÷ Sales = $120,000 ÷ $480,000 = 0.25
Learning Objectives
- Comprehend the method and relevance of calculating the contribution margin and its corresponding ratio.
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