Question

Kelchner Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units) $ 180,000 Variable expenses 108,000 Contribution margin 72,000 Fixed expenses 62,400 Net operating income $ 9,600 The contribution margin ratio is closest to:

Answer 1

Answer:

The contribution margin ratio is closest to 40%

Explanation:

The contribution margin ratio calculates the percentage of sales that will contribute to cover fixed costs and earn a profit. The contribution margin is the difference between the selling price per unit and the variable cost per unit of a product. The contribution margin ratio is the contribution margin per unit represented as a percentage of selling price per unit or total contribution margin represented as a percentage of total sales revenue.

CM Ratio = Total contribution margin / Total Sales revenue

CM ratio = 72000 / 180000  =  0.4 or 40%