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Reliable Furniture manufactures recliners selling for $500 each. Variable costs per unit are $175 for direct material, $125 for direct labor, $35 for variable production overhead, and $15 for variable selling and administrative costs. Annual fixed costs are $200,000 for production overhead and $100,000 for selling and administrative costs. The company applies fixed production overhead to recliners based on a capacity of 20,000 units per year.
-Reliable Furniture's contribution margin ratio is

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Reliable Furniture manufactures recliners selling for $500 each. Variable costs per unit are $175 for direct material, $125 for direct labor, $35 for variable production overhead, and $15 for variable selling and administrative costs. Annual fixed costs are $200,000 for production overhead and $100,000 for selling and administrative costs. The company applies fixed production overhead to recliners based on a capacity of 20,000 units per year.
-Reliable Furniture's contribution margin ratio is

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Contribution margin ratio = Contribution margin / Sales revenueContribution margin = Sales revenue - Variable costsSales revenue = $500 per unitVariable costs = $175 + $125 + $35 + $15 = $350 per unitContribution margin = $500 - $350 = $150 per unitContribution margin ratio = $150 / $500 = 30%

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