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During a recent fiscal year, creek company reported pretax income of $117,000, a contribution margin ratio of 20% and total contribution margin of $320,000. total variable costs must have been:

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barnuts

To solve this problem, we use the formula in calculating for the total variable cost (COGS):

Revenue - COGS - SG&A = Pretax profits 

 

where SG & A is calculated as:
SG & A = (Contribution - Prextax income) 
SG & A = ($320,000 - $117,000)
SG & A= $275,000 

 

Calculating for revenue using the margin ratio:
Contribution margin/Revenue = Contribution Margin Ratio 
Revenue = Contribution Margin/Contribution Margin Ratio 
Revenue = $320,000/.20

Revenue = $1.6m 

Going back to the 1st formula:
Revenue - COGS - SG&A = Pretax profits 
1.6m - COGS - 275k = 117k 
COGS = $1.6m - $117k - $275k

COGS = $1.208 million

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