The Pearson Company has a contribution margin ratio of 25%. Pearson's operating income was $100,000 when sales totaled $1,000,000. What were Pearson's fixed expenses?
A) $250,000
B) $150,000
C) $350,000
D) $225,000

Question

Quizplus · Accepted Answer

Fixed expenses can be calculated by subtracting the operating income from the total contribution margin. The contribution margin is 25% of sales, so for $1,000,000 in sales, the contribution margin is $250,000 ($1,000,000 * 25%). Subtracting the operating income of $100,000 from the contribution margin ($250,000 - $100,000) gives us fixed expenses of $150,000.

The Pearson Company Has a Contribution Margin Ratio of 25