Old Canadian Company has sales of $500,000, variable costs of $425,000, and fixed costs of $25,000.New World Company has sales of $500,000, variable costs of $200,000, and fixed costs of $250,000.Old Canadian's contribution margin ratio is
A)15%.
B)60%.
C)85%.
D)95%.

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Costs) / Sales. For Old Canadian Company, it is ($500,000 - $425,000) / $500,000 = $75,000 / $500,000 = 0.15 or 15%.

Old Canadian Company Has Sales of $500,000, Variable Costs of $425,000