Question

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the...

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

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

Sales $88,000
Total Variable cost 64,240
Contribution margin $23,760
Total Fixed cost 9,180
Operating income $14,580

Required:

1. Calculate the contribution margin ratio.

%

2. Calculate the variable cost ratio.

%

3. Calculate the break-even sales revenue for Ashton.

$

4. How could Ashton increase projected operating income without increasing the total sales revenue?

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Homework Answers

Answer #1
  • All working forms part of the answer
  • Requirements

A

Contribution margin

$23,760

B

Sales

$88,000

C = (A/B) x 100

Contribution margin ratio

27%

Answer: requirement 1

A

Contribution margin ratio

27%

B = 100% - 27%

Variable Cost ratio

73%

Answer: requirement 2

A

Total Fixed Cost

$9,180

B

Contribution margin ratio

27%

C = A/B

Break Even Sales revenue

$34,000

Answer: requirement 3

>Requirement 4
Ashton can increase projected operating income (without increasing the total sales revenue) by:-
#1 decreasing variable cost per unit,
#2 decreasing total fixed cost

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