EX 21-9 Contribution margin ratio

a. Knick Company budgets sales of $2,750,000, fixed costs of $600,000, and variable costs of $1,760,000. What is the contribution margin ratio for Knick Company?

b. If the contribution margin ratio for Koval Company is 40%, sales were $1,450,000, and fixed costs were $356,000, what was the income from operations?


Answer:

a. Sales………………………… $2,750,000
Variable costs…………… 1,760,000
Contribution margin…… $ 990,000
Contribution
Margin Ratio = Sales – Variable Costs
Sales
Contribution
Margin Ratio = $990,000
$2,750,000 = 36%
b. Sales…………………………………………………… $1,450,000
Contribution margin ratio…………………………… × 40%
Contribution margin………………………………… $ 580,000
Less fixed costs……………………………………… 356,000
Income from operations…………………………… $ 224,000