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25 October, 16:04

The controller of Ashton Company prepared the following projected income statement: Sales $88,000 Total Variable cost 70,400 Contribution margin $17,600 Total Fixed cost 6,800 Operating income $10,800 Required: 1. Calculate the contribution margin ratio.

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  1. 25 October, 16:20
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    Contribution margin ratio = 20%

    Explanation:

    We know, contribution margin is the difference between sales revenue and variable expenses, while the contribution margin ratio expressed as a parentage between the contribution margin and company sale.

    We know,

    contribution margin ratio = (contribution margin : sales revenue) * 100

    Given,

    Contribution margin = $17,600

    sales revenue = $88,000

    Putting the value into the formula, we can get

    contribution margin ratio = ($17,600 : $88,000) * 100

    or, contribution margin ratio = 0.2 * 100

    Contribution margin ratio = 20%
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