Question

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the following projected income statement: Sales $88,000 Total variable cost 23,760 Contribution margin $64,240 Total fixed cost 43,800 Operating income $20,440 Required: 1. Calculate the contribution margin ratio. Note: Enter as a percent, rounded to the nearest whole number. % 2. Calculate the variable cost ratio. Note: Enter as a percent, rounded to the nearest whole number. % 3. Calculate the break-even sales revenue for Ashton. Note: Round your answer to the nearest dollar. $ 4. How could Ashton increase projected operating income without increasing the total sales revenue?

Answer 1

Answer:

1.  73 %

2. 27 %

3. $60,000

4. Ways to increase projected operating income without increasing total sales revenue :

1. Reduce the variable costs per unit
2. Reduce fixed overheads

Explanation:

Contribution Margin Ratio = Contribution / Sales × 100

Where,

Contribution = Sales - Variable Costs

                     = $88,000 - $23,760

                     = $64,240

Then,

Contribution Margin Ratio = $64,240/ $88,000 × 100

                                           = 73 %

Variable Cost Ratio = Variable Cost / Sales × 100

                                = $23,760 / $88,000 × 100

                                = 27 %

Break-even sales revenue = Fixed Costs ÷  Contribution Margin Ratio

                                            = $43,800 ÷ 0.73

                                            = $60,000

Ways to increase projected operating income without increasing total sales revenue :

1. Reduce the variable costs per unit
2. Reduce fixed overheads