Question

A company had sales of $920,000 and fixed costs were $160,000. What was the income from operations if the contribution margin ratio was 30 percent?

a) $116,000
b) $276,000
c) $484,000
d) $644,000

Answer 1

The income from operations would be $116,000.

Step-by-step explanation:

The income from operations can be calculated using the contribution margin ratio formula, which is:

Contribution margin ratio = (Sales - Variable costs) / Sales

In this case, the contribution margin ratio is given as 30 percent, so we can set up the equation as follows:

30% = (Sales - Variable costs) / Sales

Given that the company had sales of $920,000 and fixed costs were $160,000, we can substitute these values into the equation:

30% = ($920,000 - Variable costs) / $920,000

To find the income from operations, we need to solve for Variable costs. Rearranging the equation, we get:

Variable costs = $920,000 - (30% * $920,000)

Variable costs = $920,000 - $276,000

Variable costs = $644,000

Now, we can calculate the income from operations:

Income from operations = Sales - Variable costs - Fixed costs

Income from operations = $920,000 - $644,000 - $160,000

Income from operations = $116,000