Spruce-Up Company provides cleaning services to commercial and residential customers. The commercial business segment provided services to 250 customers and the residential business segment provided services to 625 customers. $$\begin{array} { | l | r | r | r | }
\hline & \text { Commercial } & \text { Residential } & { \text { Total } } \
\hline \text { Service Revenue } & \$ 86,000 & \$ 115,000 & \$ 201,000 \
\hline \text { Variable Costs } & 31,000 & 56,000 & 87,000 \
\hline \text { Fixed Costs } & \underline { 46,000 } & \underline { 53,000 } & \underline { 99,000 } \
\hline \text { Operating Income } & \$ 9000 & \$ 6000 & \$ 15,000 \
\hline
\end{array}$$ Identify the segment with the lower contribution margin ratio and show the amount of its contribution margin ratio. (Round your answer to two decimals.)

Question

Spruce-Up Company provides cleaning services to commercial and residential customers. The commercial business segment provided services to 250 customers and the residential business segment provided services to 625 customers. $$\begin{array} { | l | r | r | r | } 
\hline & \text { Commercial } & \text { Residential } & { \text { Total } } \
\hline \text { Service Revenue } & \$ 86,000 & \$ 115,000 & \$ 201,000 \
\hline \text { Variable Costs } & 31,000 & 56,000 & 87,000 \
\hline \text { Fixed Costs } & \underline { 46,000 } & \underline { 53,000 } & \underline { 99,000 } \
\hline \text { Operating Income } & \$ 9000 & \$ 6000 & \$ 15,000 \
\hline
\end{array}$$ Identify the segment with the lower contribution margin ratio and show the amount of its contribution margin ratio. (Round your answer to two decimals.)

Quizplus · Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin by the sales revenue. The contribution margin is the difference between the sales revenue and the variable costs.For the commercial segment, the contribution margin is $86,000 - $31,000 = $55,000. The contribution margin ratio is $55,000 / $86,000 = 0.64, or 64.00%.For the residential segment, the contribution margin is $115,000 - $56,000 = $59,000. The contribution margin ratio is $59,000 / $115,000 = 0.51, or 51.30%.Therefore, the segment with the lower contribution margin ratio is the residential segment, with a contribution margin ratio of 51.30%.

Spruce-Up Company Provides Cleaning Services to Commercial and Residential Customers