The figure for the variable costs of the company is wrong. The correct figure for variable cost is $35000.
A company sells 5,000 units at $25 each. If the variable costs are $35,000 what is the contribution margin ratio.
Answer:
Contribution Margin ratio = 0.72 or 72%
Explanation:
The contribution margin ratio is the percentage of sales revenue that is contributed towards covering the fixed costs of the business. The contribution margin ratio is calculated by subtracting the total variable costs by the sales revenue and expressing it as a percentage of sales revenue. Thus, the formula is,
Contribution Margin ratio = (Sales Revenue - Variable costs
) / Sales Revenue
The sales revenue is = 5000 * 25 = 125000
Contribution Margin ratio = (125000 - 35000) / 125000
Contribution Margin ratio = 0.72 or 72%
