In an internal operating income statement, the form is as such:
(1) Sales (or Revenue) - Total Variable Costs = Contribution Margin;
(2) Contribution Margin - Total Fixed Costs = Operating Income
and
(3) Contribution Margin Ratio = Contribution Margin/Sales
The first equation helps us out. Sales is the whole amount for this statement, or 100%. We know variable costs are 62% and the rest goes to the Cont. Margin.
100% - 68% = 32% (choice A)
Answer:
The answer is a): 38%.
Step-by-step explanation:
Contribution margin ratio is a ratio of the difference between sales and variable costs/expenses, to the sales; it can be expressed in percentage.
Sales = $425,000
Variable costs = 62% of $425,000 = 62 × $425,000 ÷ 100 = $263,500 .
The difference between sales and variable cost = $425,000 — $263,500 = $161,500 .
Therefore, the contribution margin ratio = $161,500 ÷ $425,000 = 0.38
The contribution margin ratio expressed in percentage = 0.38 × 100 = 38% .
