Question

Perfect​ Clean, Inc. provides housekeeping services. The following financial data have been provided. Service Revenue $ 70 comma 000 Cleaning Supplies Used 22 comma 000 Wages Expense 18 comma 350 Office Rent Expense 5 comma 150 Depreciation Expenselong dashMachinery 550 Calculate the contribution margin and the contribution margin ratio.​ (Round your contribution margin to the nearest​ dollar, and your contribution margin ratio to two decimal​ places.)

Answer 1

Answer:

The contribution margin is $29,650

The contribution margin ratio is 42.35%

Explanation:

Contribution Margin : The contribution margin shows a difference between sales revenue and variable cost.

For computing the contribution margin, the following formula is used which is shown below:

= Service revenue - Cleaning supplies - wages expenses

= $70,000 - $22,000 - $18,350

=$29,650

Thus, the contribution margin is $29,650

Now, the contribution margin ratio is a ratio between contribution margin and sales.

In mathematically,

Contribution margin ratio = Contribution ÷ Service revenue

                                          = $29,650 ÷ $70,000

                                          = 42.35%

Hence, the contribution margin ratio is 42.35%