Question

A cement manufacturer has supplied the following data:

Tons of cement produced and sold		320,000
Sales revenue	$	1,024,000
Variable manufacturing expense	$	241,000
Fixed manufacturing expense	$	340,000
Variable selling and administrative expense	$	199,320
Fixed selling and administrative expense	$	101,000
Net operating income	$	142,680

The company's contribution margin ratio is closest to:

Answer 1

Solution :

Contribution Margin Ratio is the difference of company's Sale revenue and Variable cost , expressed as a percentage. It's good to have a high contirbution ration as it shows the amount of money available to cover the fixed cost

Contribution Margin = Sales Revenu - Variable Costs

= $ 1024000 - ($ 241000 + $ 199320)

= $ 1024000 - $ 440320

Contribution Margin = $ 583680

Contribution Margin Ratio = (Contribution Margin / Sales Revenue) * 100

= ($ 583680 / $ 1024000) * 100

Contribution Margin Ratio = 57%

Therefore, The company's Contribution Margin ration is closest to  57%