Question

Sheridan Company produces flash drives for computers, which it sells for $12 each. Each flash drive costs $9 of variable costs to make. During April, 1000 drives were sold. Fixed costs for April were $1000. How much is the contribution margin ratio

Answer 1

Answer:

12%

Explanation:

Contribution margin ratio is calculated as

= Contribution margin / Sales

Sales [ $12 each × 1,000 drives sold] $12,000

Less Variable costs [$9 each x 1,000 drives sold]

($9,000)

Contribution margin

$3,000

Less Fixed costs

($1,000)

Operating profit

$1,000

Recall that contribution margin ratio

= [ Contribution margin / Sales] × 100

= [ $3,000 / $12,000 ] × 100

= 12%

Therefore, contribution margin ratio is 12%