Hawke Caribbean Sales has developed the following projections for the upcoming y
ID: 2527261 • Letter: H
Question
Hawke Caribbean Sales has developed the following projections for the upcoming year of operations.
Sales of 100,000 units at $5
Units sold equal units produced
Variable costs for 100,000 units:
Direct material
$125,000
Direct labor
100,000
Variable overhead
30,000
Selling and administrative expense
45,000
Total fixed costs
120,000
What is the projected contribution margin ratio?
25%
40%
50%
None of the above
Sales of 100,000 units at $5
Units sold equal units produced
Variable costs for 100,000 units:
Direct material
$125,000
Direct labor
100,000
Variable overhead
30,000
Selling and administrative expense
45,000
Total fixed costs
120,000
Explanation / Answer
Contribution Margin = [ Contribution / Sales ] * 100
= [200,000 / 500,000]*100
= 40%
The correct option is (b) , 40%.
Sales(100,000 *$5) 500000 Less: Variable Costs Direct Materials 125000 Direct Labor 100000 Variable Overhead 30000 Selling and administrative overheads 45000 300000 Contribution 200000
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