At a sales level of $300,000, James Company's gross margin is $15,000 less than its contribution margin, its net operating income is $50,000, and its selling and administrative expenses total $120,000. At this sales level, its contribution margin would be:
A) $250,000
B) $155,000
C) $170,000
D) $185,000

Question

Quizplus · Accepted Answer

The contribution margin is calculated by adding the net operating income and selling and administrative expenses to the gross margin. Given that the gross margin is $15,000 less than the contribution margin, we can set up the equation: Contribution Margin = Gross Margin + $15,000. Since Net Operating Income = Contribution Margin - Selling and Administrative Expenses, we have $50,000 = Contribution Margin - $120,000. Solving this gives Contribution Margin = $170,000. Adding the $15,000 difference gives us $185,000.

At a Sales Level of $300,000, James Company's Gross Margin