Question

If variable cost ratio to sales revenue is 35% which ratio will be automatically 65% (100% - 35%): Select one: a. Fixed cost to variable cost ratio b. Contribution margin ratio c. Margin of Safety ratio d. Variable cost to fixed cost ratio

Answer 1

The Answer is b. Contribution margin ratio

Explanation:

1) Contribution margin consists of both fixed cost and operating income.Contribution margin is arrived by subtracting variable cost from sales revenue.

2) If Variable cost ratio to sales revenue is 35% then remaining 65% will be relating to Contribution margin ratio to sales revenue.

3) So, based on given statement contribution margin ratio is the right option for the question.

4) Remaining options are Incorrect because

5) Fixed cost to variable cost ratio and Variable cost to fixed cost ratio are Incorrect because there tells the relationship between variable cost and fixed cost but not of sales revenue.

6) Margin of Safety ratio is Incorrect because it deals with excess sales above break even sales but not about total sales revenue.