Psari's, a company that sells fishing nets, provides the following information about its product: Targeted operating income $ 54 comma 000 Sales price per unit 6.00 Variable cost per unit 2.00 Total fixed costs 115 comma 000 What is the contribution margin ratio? (Round any intermediate calculations and your final answer to two decimal places.) A. 33.33 % B. 66.67 % C. 100 % D. 166.67 %

Question

Charity Henderson

Business

24 November, 10:06

Psari's, a company that sells fishing nets, provides the following information about its product: Targeted operating income $ 54 comma 000 Sales price per unit 6.00 Variable cost per unit 2.00 Total fixed costs 115 comma 000 What is the contribution margin ratio? (Round any intermediate calculations and your final answer to two decimal places.) A. 33.33 % B. 66.67 % C. 100 % D. 166.67 %

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Answers (1)

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Kaylah Booker · Answer 1

B. 66.67 %

Explanation:

Contribution is the difference between the company's total revenue and the total variable cost. The ratio of the contribution to sales or revenue gives the contribution margin ratio.

The contribution may also be derived from the addition of the fixed cost and the operating income.

Contribution margin

= $115,000 + $54,000

= $169,000

Let the number of units to be sold to achieve targeted income be U

6U - 2U - 115,000 = 54,000

4U = 169,000

U = 42,250

Contribution margin ratio = 169000 / (6 * 42,250)

= 66.67%