If a company had a contribution margin of $1000000 and a contribution margin ratio of 40% total variable costs must have been
A) $1500000.
B) $600000.
C) $2500000.
D) $400000.

Question

Quizplus · Accepted Answer

The contribution margin is equal to sales minus total variable costs. The contribution margin ratio is the contribution margin divided by sales. Using these formulas, we can set up the equations as:
Contribution Margin = $1,000,000
Contribution Margin Ratio = 40%
Contribution Margin = Sales - Total Variable Costs
Contribution Margin Ratio = Contribution Margin / Sales

From the Contribution Margin Ratio equation, we can solve for Sales:
Contribution Margin Ratio = Contribution Margin / Sales
0.40 = $1,000,000 / Sales
Sales = $2,500,000

Plugging in Sales and Contribution Margin into the Contribution Margin equation, we can solve for Total Variable Costs:
Contribution Margin = Sales - Total Variable Costs
$1,000,000 = $2,500,000 - Total Variable Costs
Total Variable Costs = $2,500,000 - $1,000,000
Total Variable Costs = $1,500,000

Therefore, the total variable costs must have been $1,500,000, or Choice A.

If a Company Had a Contribution Margin of $1000000 and a Contribution