Question

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue

The controller of Sandoval Company prepared the following projected income statement:

Sales	$90,000
Total Variable cost	79,000
Contribution margin	$11,000
Total Fixed cost	6,500
Operating income	$4,500

Required:

1. Calculate the contribution margin ratio. Round your answer to the nearest whole number.

%

2. Calculate the variable cost ratio. Round your answer to the nearest whole number.

%

3. Calculate the break-even sales revenue for Sandoval. If required, round your answer to nearest dollar.

$

Answer 1

given data

sales = $ 90000

variable cost = $ 79000

contribution margin = $ 11000

total fixed cost = $ 6500

operating income = $ 4500

1) calculate the contribution margin ratio :

contribution margin ratio = contribution margin / sales

= (11000 / 90000) * 100

contribution margin ratio = 12% (approxmately)

2) calculate the variable cost ratio :

variable cost ratio = variable cost / sales

= (79000 / 90000) * 100

variable cost ratio = 88% (approxmately)

3) calculate the break even sales revenue :

break even sales = total fixed cost / contribution margin ratio

= 6500 / 12%

break even sales revenue = $ 53182 (approxmately)

(please note that the intermediate calculations have not been rounded off)