Answered

Last month when Holiday Creations, Inc., sold 43,000 units, total sales were $172,000, total variable expenses were $142,760, and fixed expenses were $38,500.

Required:
What is the company's contribution margin (CM) ratio?

Verified Answer :

sitapoudellamichhane

Answer:

To determine the company's contribution margin (CM) ratio, we need to follow these steps:

1. Calculate the total contribution margin.

2. Divide the total contribution margin by total sales to get the CM ratio.

First, let's calculate the total contribution margin:

\[ \text{Total Contribution Margin} = \text{Total Sales} - \text{Total Variable Expenses} \]

Given:

- Total Sales = $172,000

- Total Variable Expenses = $142,760

\[ \text{Total Contribution Margin} = \$172,000 - \$142,760 = \$29,240 \]

Next, we calculate the CM ratio:

\[ \text{CM Ratio} = \frac{\text{Total Contribution Margin}}{\text{Total Sales}} \]

\[ \text{CM Ratio} = \frac{\$29,240}{\$172,000} \]

\[ \text{CM Ratio} \approx 0.17 \]

So, the company's contribution margin ratio is approximately 0.17 or 17%.

Related Questions