Question

Concord Corporation reported the following information for the current year: Sales (42000 units) $840000, direct materials and direct labor $420000, other variable costs $42000, and fixed costs $360000. What is Concord’s contribution margin ratio?

Answer 1

Answer:

Contribution margin ratio is 45%, in value it is $378,000.00

Explanation:

Contribution margin ratio is sales - (direct costs + variable costs )

Here sales = $840,000.00

Direct costs = $420,000.00

Variable costs = $42,000.00

Thus $840,000.00 - ($420,000.00 + $42,000.00) = $378,000.00

As a percentage of sales = $378,000.00 / $840,000.00 = 45%

Fixed cost is of no relevance for computing contribution margin.

Also contribution margin is generally calculated as a percentage of sales value.

Contribution margin = 45% or $378,000.00