Multiple Choice Question 88 If a company had a contribution margin of $500000 and a contribution margin ratio of 40%, total variable costs must have been
$750000.
$1250000.
$200000
$300000
Homework Answers
we will use two formulas:
contribution margin ratio = contribution margin/sales
contribution margin = sales-variable cost
Given information:
*Contribution margin =$500,000
*CM ratio = 0.40
Variable cost=?
-Contribution margin ratio = contribution margin/sales
0.40=$500,000/sales
sales=$1,250,000
-contribution margin = sales-variable cost
$500,000=$1,250,000-variable cost
variable cost = $1,250,000-$500,000
=$750,000
Answer A)
Please upvote if you find this helpful.Incase of query pelase comment.
Option (A) $ 750,000 is the correct alternative.
Explanation :
Contribution margin ratio = [ Contribution margin / Net Sales Revenue ] X 100 %
40% = [ $ 500,000/ Net Sales Revenue ] X 100%
40% / 100% = $ 500,000 / Net Sales Revenue
Net Sales Revenue = $ 500,000 X 100/40
Net Sales revenue = $ 1,250,000
Contribution margin = Net sales revenue - Total variable cost
So, Total Variable Costs = Net sales Revenue - Contribution margin
Total variable cost = $ 1,250,000 - $ 500,000
Total variable cost = $ 750,000
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