If a company had a contribution margin of $500,000 and a contribution margin ratio of 40%, total variable costs must have been
A) $750,000.
B) $300,000.
C) $1,250,000.
D) $200,000.

Question

Quizplus · Accepted Answer

Contribution margin = sales - total variable costs
Contribution margin ratio = contribution margin ÷ sales

Given:
Contribution margin = $500,000
Contribution margin ratio = 40%

Let's use the contribution margin ratio formula to find the sales.
Contribution margin ratio = contribution margin ÷ sales
40% = $500,000 ÷ sales
Sales = $500,000 ÷ 40%
Sales = $1,250,000

Now that we know the sales, we can use the contribution margin formula to find the total variable costs.
Contribution margin = sales - total variable costs
$500,000 = $1,250,000 - total variable costs
Total variable costs = $1,250,000 - $500,000
Total variable costs = $750,000

Therefore, the best choice is A, as total variable costs must have been $750,000.

If a Company Had a Contribution Margin of $500,000 and a Contribution