Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500.
-Refer to the Figure.What is the contribution ratio?
A)35%
B)50%
C)58%
D)65%

Question

Quizplus · Accepted Answer

Contribution ratio is the proportion of the sales revenue that remains after covering variable costs.

Contribution Ratio = (Sales - Variable Costs) / Sales

Contribution Ratio = ($550,000 - $230,000) / $550,000

Contribution Ratio = 58%

Therefore, the answer is C.

As for the best choice, it depends on the context and the criteria for evaluation. If we want to maximize profitability, we should choose products or markets with higher contribution ratios. If we want to increase sales volume or market share, we may need to adjust the pricing or promotion strategies. If we want to reduce costs, we may need to improve efficiency, negotiate better deals with suppliers, or eliminate non-essential fixed costs. Ultimately, the best choice is the one that aligns with the overall goals and values of the company.

Desjardin's Makes Power Tools