The Pearson Company has a contribution margin ratio of 25%. Pearson's operating income was $100,000 when sales totaled $1,000,000. What were Pearson's fixed expenses?
A) $250,000
B) $150,000
C) $350,000
D) $225,000

Question

Quizplus · Accepted Answer

Fixed expenses can be calculated using the formula: Operating Income = (Sales × Contribution Margin Ratio) - Fixed Expenses. Here, Operating Income = $100,000, Sales = $1,000,000, and Contribution Margin Ratio = 25% or 0.25. So, $100,000 = ($1,000,000 × 0.25) - Fixed Expenses. Simplifying, $100,000 = $250,000 - Fixed Expenses. Therefore, Fixed Expenses = $250,000 - $100,000 = $150,000.

The Pearson Company Has a Contribution Margin Ratio of 25