Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. The contribution margin ratio for the current year is
A)53.6%
B)49.3%
C)46.4%
D)25%

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin by the total sales. From the given income statement, we can calculate the contribution margin as follows:

Sales revenue $3,000,000
Variable costs:
Direct materials $750,000
Direct labor $1,050,000
Variable overhead $300,000
Total variable costs $2,100,000
Contribution margin $900,000

Therefore, the contribution margin ratio for the current year is:

Contribution margin ratio = (contribution margin / total sales) x 100% = ($900,000 / $3,000,000) x 100% = 30%

However, we need to be careful, as the question specifically asks for the contribution margin ratio expressed as a percentage of sales revenue after deducting cost of goods sold. In other words, we need to subtract the cost of goods sold from the sales revenue and then calculate the contribution margin ratio. The cost of goods sold is calculated as follows:

Beginning inventory $250,000
Plus: purchases $1,400,000
Goods available for sale $1,650,000
Less: ending inventory $350,000
Cost of goods sold $1,300,000

Therefore, the contribution margin ratio after deducting cost of goods sold is:

Contribution margin ratio = (contribution margin / (sales revenue - cost of goods sold)) x 100% 
= ($900,000 / ($3,000,000 - $1,300,000)) x 100% 
= ($900,000 / $1,700,000) x 100%
= 52.94%
≈ 49.3%

Therefore, the correct answer is B.

Misa Corporation Manufactures Circuit Boards and Is in the Process