Question

Kite Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units) $ 180,000 Variable expenses 108,000 Contribution margin 72,000 Fixed expenses 62,400 Net operating income $ 9,600 The contribution margin ratio is closest to:

Multiple Choice
a. 33%
b. 60%
c. 67%
d. 40%

Answer 1

d. 40%

Step-by-step explanation:

The formula to compute the contribution margin is shown below:

Contribution margin = (Contribution ÷ sales) × 100

= ($72,000 ÷ $180,000) × 100

= 0.4 × 100

= 40%

The other items which are mentioned in the question are not relevant. Hence, it is not considered in the computation part.

And, the contribution margin should always be calculated on sales value.