Question

The controller of Ashton Company prepared the following projected income statement: Sales $88,000 Total Variable cost 70,400 Contribution margin $17,600 Total Fixed cost 6,800 Operating income $10,800 Required: 1. Calculate the contribution margin ratio.

Answer 1

Answer:

Contribution margin ratio = 20%

Explanation:

We know, contribution margin is the difference between sales revenue and variable expenses, while the contribution margin ratio expressed as a parentage between the contribution margin and company sale.

We know,

contribution margin ratio = (contribution margin ÷ sales revenue) × 100

Given,

Contribution margin = $17,600

sales revenue = $88,000

Putting the value into the formula, we can get

contribution margin ratio = ($17,600 ÷ $88,000) × 100

or, contribution margin ratio = 0.2 × 100

Contribution margin ratio = 20%