Dakota Company provides the following information about its single product:
$$\begin{array} { | l | r | }
\hline \text { Targeted operating income } & \$ 40,000 \
\hline \text { Selling price per unit } & \$ 3.50 \
\hline \text { Variable cost per unit } & \$ 1.05 \
\hline \text { Total fixed costs } & \$ 90,000 \
\hline
\end{array}$$ What is the contribution margin ratio?
A) 0.70
B) 0.44
C) 0.56
D) 0.30

Question

Dakota Company provides the following information about its single product:
$$\begin{array} { | l | r | } 
\hline \text { Targeted operating income } & \$ 40,000 \
\hline \text { Selling price per unit } & \$ 3.50 \
\hline \text { Variable cost per unit } & \$ 1.05 \
\hline \text { Total fixed costs } & \$ 90,000 \
\hline
\end{array}$$ What is the contribution margin ratio?
A) 0.70
B) 0.44
C) 0.56
D) 0.30

Quizplus · Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin by the selling price per unit. The contribution margin is the difference between the selling price per unit and the variable cost per unit. In this case, the contribution margin is $3.50 - $1.05 = $2.45. The contribution margin ratio is $2.45 / $3.50 = 0.70.

Dakota Company Provides the Following Information About Its Single Product