Asked by Erika Johnson on Jun 17, 2024
Verified
If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%.
Contribution Margin Ratio
A financial metric that measures a product's profitability by calculating the difference between its sales and variable costs as a percentage of total sales.
Fixed Costs
Expenses that do not change with the level of production or sales over a certain range and time period.
Variable Costs
Costs that vary in direct proportion to changes in the level of production or sales volume.
- Assess and interpret the role of the contribution margin in relation to fixed expenditures and income from operations.
Verified Answer
KM
Karima MorsiJun 18, 2024
Final Answer :
True
Explanation :
Contribution Margin Ratio = (Sales - Variable Costs)/Sales
Variable Costs = 0.6 * Sales = 0.6 * $2,000,000 = $1,200,000
Contribution Margin Ratio = ($2,000,000 - $1,200,000)/$2,000,000 = 0.4 or 40%
Variable Costs = 0.6 * Sales = 0.6 * $2,000,000 = $1,200,000
Contribution Margin Ratio = ($2,000,000 - $1,200,000)/$2,000,000 = 0.4 or 40%
Learning Objectives
- Assess and interpret the role of the contribution margin in relation to fixed expenditures and income from operations.