Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The con

Question

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue

The controller of Ashton Company prepared the following projected income statement:

Required:

1. Calculate the contribution margin ratio.

%

2. Calculate the variable cost ratio.

%

3. Calculate the break-even sales revenue for Ashton.

$

4. How could Ashton increase projected operating income without increasing the total sales revenue?

Sales $88,000 Total Variable cost 64,240 Contribution margin $23,760 Total Fixed cost 9,180 Operating income $14,580

Explanation / Answer

1. Contribution Margin ratio = (Sales - Total Variable Cost ) / Sales *100

= ( $ 88,000 - $ 64,240) / $ 88,000 *100

= 27.00%

Hence the correct answer is 27.00%

2. The Variable Cost Ratio =

(Total Variable Cost ) / Sales *100

= ($ 64,240) / $ 88,000 *100

= 73.00%

Hence the correct answer is 73.00%

3. Break Even Sales Revenue = Fixed Cost / Contribution Margin Ratio

= $ 9,180 / 27%

= $ 34,000

Hence the correct answer is $ 34,000

4. The Projected operating income could be increased without any increase in the sales revenue by decreasing the variable cost ratio.

If the variable cost ratio decreased , the contribution margin would increase and hence, the operating income would increase, provided the fixed costs remains the same.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.