Question

xConcord Corporation produces flash drives for computers, which it sells for $12 each. Each flash drive requires $6 of variable costs to make. During April, 1000 drives were sold. Fixed costs for April were $1000. How much is the contribution margin ratio?

50%

30%

33%

67%

Answer 1

Answer : Contribution margin ratio = 50%

Working Note : Contribution margin ratio = (Sales - Variable cost) / Sales

= ( $ 12,000 - $ 6,000) / $ 12,000

= $ 6,000 / $ 12,000

= 50%

Sales = 1000 drives x $ 12 per unit = $12,000

Variable cost = 1000 drives x $ 6 per unit = $ 6,000

Note :

Contribution margin ratio is the difference between sales and variable cost expressed as a percentage. It means contributing to covering fixed cost. It represents the incremental money generated for each products sold after deducting the variable portion of the firm's cost.

answered by: anonymous