Question

Contribution Margin Ratio a. Young Company budgets sales of $720,000, fixed costs of $51,800, and variable costs of $230,400. What is the contribution margin ratio for Young Company? %

b. If the contribution margin ratio for Martinez Company is 45%, sales were $491,000, and fixed costs were $165,710, what was the operating income?

Answer 1

A) young company sales = $ 720,000 and variable cost = $ 230,400.

Thus contribution margin = Sales - variable cost = $ 720000 - $ 230400

Contribution margin = $ 489,600.

Further contribution margin ratio = Contribution margin / sales .

Contribution margin ratio = $ 489600 / 720000 = 0.68 i.e 68 %.

Thus contribution margin ratio =68%.

B) if the contribution margin ratio for Martinez company is 45 %.

Sales is given as $ 491,000 and fixed cost is given as $ $ 165,710

Now we know that : Contribution margin ratio. = Contribution margin / sales.

Thus : 45 % = contribution margin / 491000.

So contribution margin = $ 491000 × 45 % = $ 220,950.

Further operating profit = contribution margin - fixed cost.

Operating profit = $ 220,950 - $ 165,710

Operating income = $ 55,240.