Question

Item32 time remaining 46 minutes 2 seconds 00:46:02 item 32 item 32 time remaining 46 minutes 2 seconds 00:46:02 during a recent fiscal year, creek company reported pretax income of $125,000, a contribution margin ratio of 25% and total contribution margin of $400,000. total variable costs must have been:

Answer 1

The variable cost is calculated as -

Sales - Variable cost = Contribution Margin

Given, Contribution Margin = 25 %

Variable cost = 1 - Contribution Margin = 1 - 25 % = 75 %

25 % of Sales = Contribution Margin = $ 400,000

Sales = $ 400,000 ÷ 25 %

Sales = $ 1,600,000

Variable costs = 75% of Sales = 75 % × $ 1,600,000 = $ 1,200,000