Kingston Company sells its product for $200 per unit. The company's accountant provided the following cost information: What is Kingston Company's contribution margin ratio?
$$\begin{array} { | l | l | }
\hline \text { Manufacturing costs } & \$ 25,000 + 40 \% \text { of sales } \
\hline \text { Selling costs } & \$ 10,000 + 20 \% \text { of sales } \
\hline \text { Administrative costs } & \$ 15,000 + 10 \% \text { of sales } \
\hline
\end{array}$$
A)30%
B)15%
C)35%
D)20%

Question

Kingston Company sells its product for $200 per unit. The company's accountant provided the following cost information: What is Kingston Company's contribution margin ratio?
$$\begin{array} { | l | l | } 
\hline \text { Manufacturing costs } & \$ 25,000 + 40 \% \text { of sales } \
\hline \text { Selling costs } & \$ 10,000 + 20 \% \text { of sales } \
\hline \text { Administrative costs } & \$ 15,000 + 10 \% \text { of sales } \
\hline
\end{array}$$
A)30%
B)15%
C)35%
D)20%

Quizplus · Accepted Answer

Contribution margin is the difference between sales revenue and variable costs. In this case, the variable costs are the manufacturing costs and the selling costs. The manufacturing costs are $25,000 + 40% of sales, and the selling costs are $10,000 + 20% of sales. So, the total variable costs are $25,000 + 40% of sales + $10,000 + 20% of sales = $35,000 + 60% of sales. The contribution margin is the difference between sales revenue and variable costs, so the contribution margin is $200 - $35,000 - 60% of sales = $165 - 60% of sales. The contribution margin ratio is the contribution margin divided by sales revenue, so the contribution margin ratio is ($165 - 60% of sales) / $200 = 30%.

Kingston Company Sells Its Product for $200 Per Unit A)30% B)15% C)35% D)20

Kingston Company Sells Its Product for $200 Per Unit A)30%
B)15%
C)35%
D)20