The contribution margin ratio is equal to:
A)Total manufacturing expenses/Sales.
B)(Sales - Variable expenses)/Sales.
C)1 - (Gross Margin/Sales).
D)1 - (Contribution Margin/Sales).

Question

Quizplus · Accepted Answer

The contribution margin ratio is defined as the percentage of each sales dollar that is available to cover fixed costs and contribute to profits after variable costs are accounted for. Mathematically, it is calculated as (Sales - Variable expenses) / Sales. Therefore, option B is the correct answer. Option A is incorrect because it calculates total manufacturing expenses as a percentage of sales, whereas the contribution margin only considers the variable expenses. Option C is incorrect because it involves gross margin (which is different from contribution margin) and subtracts it from sales instead of dividing it by sales. Option D is incorrect because it subtracts the contribution margin (which is the numerator) from 1, instead of dividing it by sales as in option B.

The Contribution Margin Ratio Is Equal To