Connections Company provides cleaning services to commercial and residential cus

Question

Connections Company provides cleaning services to commercial and residential customers. The commercial business segment provided services to 270 customers and the residential business segment provided services to 665 customers.

Identify the segment with the lower contribution margin ratio and show the amount of its contribution margin ratio. (Round your answer to two decimals.)

Select one:

A. Residential, 55.17%

B. Residential, 44.83%

C. Commercial, 27.66%

D. Commercial, 40.60%

Commercial Residential Total Service Revenue $94,000 $116,000 $210,000 Variable Costs 31,000 52,000 83,000 Fixed Costs 37,000 52,000 89,000 Operating Income $26,000 $12,000 $38,000

Explanation / Answer

Contribution Margin = Service Revenue- Variable Costs

Commercial:

                                =94,000-31,000

                                =63,000

Residential:

                                =116,000-52,000

                                =64,000

Contribution Margin Ratio = Contribution Margin/ Service Revenue x 100

Commercial:

                =63,000/94,000 x 100

                =67.02%

Residential:

                =64,000/116,000 x 100

                =55.17%

Residential is low i.e 55.17%

Hence Option A is correct

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