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A manufacturer of tiling grout has supplied the following data: The company's contribution margin...

Question:

A manufacturer of tiling grout has supplied the following data:

Kilograms produced and sold 490,000
Sales revenue $1,820,000
Variable manufacturing expense $941,000
Fixed manufacturing expense $228,000
Variable selling and administrative expense $361,000
Fixed selling and administrative expense $194,000
Net operating income $96,000

The company's contribution margin ratio is closest to:

a) 48.3%

b) 80.2%

c) 28.5%

d) 76.8%

Answer and Explanation:

The formula to solve for the CM ratio is as follows:

  • CM Ratio = (Sales - Variable Costs) / Sales

Sales totaled $1,820,000. Variable costs amounted to $1,302,000. Plugging in these figures, we'll solve.

  • CM Ratio = (Sales - Variable Costs) / Sales
  • CM Ratio = ($1,820,000 - $1,302,000) / $1,820,000
  • CM Ratio = ($518,000) / $1,820,000
  • CM Ratio = 28.46% rounded

The correct answer is c) 28.5%.


Learn more about this topic:

Contribution Margin: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 22 / Lesson 20
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