If sales are $820,000, variable costs are 45% of sales, and operating income is $260,000, what is the contribution margin ratio?
A) 45%
B) 55%
C) 62%
D) 32%

Question

Quizplus · Accepted Answer

Contribution Margin Ratio = (Sales - Variable Costs) / Sales

Variable Costs = 45% of Sales

Operating Income = Sales - Variable Costs - Fixed Costs

Operating Income = $260,000

Sales = $820,000

45% of Sales = 0.45 * $820,000 = $369,000

$820,000 - $369,000 = $451,000 (contribution margin)

Contribution Margin Ratio = $451,000 / $820,000 = 55%

Therefore, the contribution margin ratio is 55%. Option B is the correct answer.

If Sales Are $820,000, Variable Costs Are 45% of Sales