Asked by Megan Smith on May 25, 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 60%.
Contribution Margin Ratio
The contribution margin ratio quantifies the portion of sales revenue that is not consumed by variable costs and is available to cover fixed costs and generate profit.
Variable Costs
Costs that change in proportion to the level of activities or volume of production in a business.
Fixed Costs
Expenses that do not fluctuate with changes in production level or sales volume.
- Ascertain the contribution margin ratio and recognize its significance within the framework of Cost-Volume-Profit analysis.
Verified Answer
AV
Ankit VermaMay 27, 2024
Final Answer :
False
Explanation :
The contribution margin ratio is calculated as (Sales - Variable Costs) / Sales. Given that variable costs are 60% of sales, the contribution margin ratio would actually be 40% (100% - 60%).
Learning Objectives
- Ascertain the contribution margin ratio and recognize its significance within the framework of Cost-Volume-Profit analysis.