Cost volume profit applied to the service industry
A nursing home has the following annual budget:
Calculate the budgeted contribution margin ratio.

Question

Quizplus · Accepted Answer

To calculate the budgeted contribution margin ratio, we need to first calculate the contribution margin and sales revenue. Based on the given budget, the nursing home has total revenue of $780,000 (from patient fees) and total variable costs of $585,000 (from salaries, supplies, and medication costs).

Contribution margin = Total revenue - Total variable costs
Contribution margin = $780,000 - $585,000
Contribution margin = $195,000

Now, we can calculate the budgeted contribution margin ratio by dividing the contribution margin by the total revenue:

Budgeted contribution margin ratio = Contribution margin / Total revenue
Budgeted contribution margin ratio = $195,000 / $780,000
Budgeted contribution margin ratio = 0.25 or 25%

Therefore, the best choice is C), as it represents the correct calculation of the budgeted contribution margin ratio for the nursing home.

Cost Volume Profit Applied to the Service Industry