If sales are $200,000, variable costs are 56% of sales, and operating income is $30,000, what is the contribution margin ratio?

Question

Quizplus · Accepted Answer

Contribution Margin Ratio = (Sales - Variable Costs) / Sales
Operating Income = Sales - Variable Costs - Fixed Costs

Substituting the given values:
$30,000 = $200,000 - 0.56($200,000) - Fixed Costs
Fixed Costs = $64,000

Contribution Margin Ratio = ($200,000 - 0.56($200,000)) / $200,000
= $88,000 / $200,000
= 0.44 or 44%

Thus, the correct answer is choice C) 44%.

If Sales Are $200,000, Variable Costs Are 56% of Sales