Contribution Margin Ratio Variable Cost Ratio BreakEven Sale

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the following projected income statement: $88,000 23,760 $64,240 43,800 $20,440 Total variable cost Contribution margin Total fixed cost Operating income Required: 1. Calculate the contribution margin ratio. Note: Enter as a percent, rounded to the nearest whole number. 2. Calculate the variable cost ratio. Note: Enter as a percent, rounded to the nearest whole number. 3. Calculate the break-even sales revenue for Ashton. Note: Round your answer to the nearest dollar. 4. How could Ashton increase projected operating income without increasing the total sales revenue?

Solution

Calculation of contribution margin ratio

Contribution Margin

64240

Sales

88000

Contribution Margin Ratio [(64240/88000)*100]

73%

Calculation of Variable cost ratio

Total Variable costs

23760

Sales

88000

Variable cost Ratio [(23760/88000)*100]

27%

Calculation of break even sales revenue

Total Fixed costs

43800

Contribution Margin Ratio [(64240/88000)*100]

73%

Break even sales revenue [(43800/73%)

60000

Ashton can increase the projected operating income without increasing the sales revenue either by reducing variable cost per unit or Decreasing the number of units sold and increasing the selling price per unit.

Calculation of contribution margin ratio
Contribution Margin	64240
Sales	88000
Contribution Margin Ratio [(64240/88000)*100]	73%