Asked by Mugan Tayalan on May 27, 2024
Verified
If sales are $425,000, variable costs are 62% of sales, and operating income is $50,000, what is the contribution margin ratio?
A) 38%
B) 26.8%
C) 11.8%
D) 62%
Contribution Margin Ratio
The percentage of sales revenue that exceeds variable costs, indicating the portion available to cover fixed costs and generate profit.
Operating Income
Income generated from a company's ongoing, core business operations, excluding deductions of interest and taxes.
Variable Costs
Costs that vary directly with the level of production or business activity.
- Leverage the contribution margin ratio concept to evaluate organizational effectiveness.
Verified Answer
AS
Ashlee SegoviaMay 30, 2024
Final Answer :
A
Explanation :
The contribution margin ratio is calculated as (Sales - Variable Costs) / Sales. Given that variable costs are 62% of sales, the contribution margin ratio is 100% - 62% = 38%.
Learning Objectives
- Leverage the contribution margin ratio concept to evaluate organizational effectiveness.
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