Question

A manufacturer of cedar shingles has supplied the following data:

Bundles of cedar shakes produced and sold		253,000
Sales revenue	$	2,049,300
Variable manufacturing expense	$	974,300
Fixed manufacturing expense	$	507,000
Variable selling and administrative expense	$	259,300
Fixed selling and administrative expense	$	293,000
Net operating income	$	15,700

The company's contribution margin ratio is closest to: (Do not round intermediate calculations. Round your answer to whole percentage.)

60%

32%

40%

68%

Answer 1

Contribution margin ratio is closest to 40%

Calculation of contribution margin

Particulars	Amount (IN $)
SALES	2049300
LESS : VARIABLE MANUFACTURING EXPENSE	974300
LESS : VARIABLE ADMINISTRATIVE EXPENSE	259300
CONTRIBUTION	815700
LESS : FIXED MANUFACTURING and ADMINISTRATIVE EXPENSE	507000 + 293000 = 800000
Net operating income	15700

Calculation of contribution margin ratio

Contribution margin ratio = Total contribution margin / Total sales

= $815700 / $2049300

= 0.398038 ×100

= 39.80 % ( approx 40% )

Note : Contribution margin measures how sales affects net income or profits.

Note : When computing contribution margin, subtract all variable costs, including variable manufacturing costs and variable selling, general, and administrative costs. DONT SUBRACT ANY FIXED COSTS.