Boespflug Incorporated has a $1,000,000 investment opportunity that involves sales of $900,000, fixed expenses of $225,000, and a contribution margin ratio of 30% of sales. The margin for this investment opportunity is closest to:
A) 5.0%
B) 25.0%
C) 75.0%
D) 30.0%

Question

Quizplus · Accepted Answer

Contribution Margin = Sales - Variable Costs
Contribution Margin Ratio = (Contribution Margin / Sales) * 100%
Contribution Margin Ratio = 30%
Fixed Costs = $225,000
Sales = $900,000

Using the contribution margin ratio formula, we can find the variable costs:
30% = (Contribution Margin / $900,000) * 100%
Contribution Margin = $270,000
Variable Costs = $630,000

Now we can calculate the margin:
Margin = (Contribution Margin - Fixed Costs) / Sales
Margin = (($270,000 - $225,000) / $900,000) * 100%
Margin = 5%

Therefore, the margin for this investment opportunity is 5%, which is closest to option A).

Boespflug Incorporated Has a $1,000,000 Investment Opportunity That Involves Sales