If sales are $795,335, variable costs are 61% of sales, and operating income is

Question

If sales are $795,335, variable costs are 61% of sales, and operating income is $273,298, what is the contribution margin ratio?

Select the correct answer.

A.

66%

B.61%

C.39%

D.34%

Wright Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $243,781, $303,602, and $408,259, respectively, for September, October, and November. The company expects to sell 20% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the sale, 25% in the month following the sale, and the remainder in the following month.

What are the cash collections in September?

Select the correct answer.

A. $243,781

B. $185,274

C. $48,756

D. $136,517

The level of inventory of a manufactured product has increased by 9,013 units during a period. The following data are also available:

Variable

Fixed

Unit manufacturing costs of the period

$14

$8

Unit operating expenses of the period

$2

$4

What would be the effect on income from operations if absorption costing is used rather than variable costing?

Select the correct answer.

A.$72,104 increase

B. $54,078 increase

C. $36,052 decrease

D. $108,156 increase

A.

66%

B.61%

C.39%

D.34%

Explanation / Answer

Answer: C. 39%

Calculation of the contribution margin ratio:

Contribution margin ratio=Sales ratio-Variable cost ratio

=100%-61%=39%

Answer:D. $136,517

Calculation of the cash collections in September:

Answer: A.$72,104 increase

Calculation of the effect on income from operations if absorption costing is used rather than variable costing:

Increase=units*Fixed Unit manufacturing costs of the period

=9013 units*$8

=$72104

Particulars Sept Budgeted sales 243781 20% in cash 48756.2 80% credit sales 195024.8 70% are expected to be collected in the month of the sale 136517.4

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