Question

wang company manufactures and sells a single product that sells for $650 per unit; variable costs are $390 per unit. annual fixed costs are $880,000. current sales volume is $4,400,000. compute the contribution margin ratio.

Answer 1

To compute the contribution margin ratio, we need to calculate the contribution margin and then divide it by the sales revenue.

The contribution margin is the difference between the sales price per unit and the variable cost per unit. In this case, the sales price per unit is $650, and the variable cost per unit is $390.

Contribution Margin = Sales Price per Unit - Variable Cost per Unit

Contribution Margin = $650 - $390

Contribution Margin = $260

To find the contribution margin ratio, we divide the contribution margin by the sales revenue. The sales revenue can be calculated by multiplying the sales volume by the selling price per unit. In this case, the sales volume is $4,400,000.

Sales Revenue = Sales Volume × Selling Price per Unit

Sales Revenue = $4,400,000 × $650

Sales Revenue = $2,860,000,000

Now, we can calculate the contribution margin ratio:

Contribution Margin Ratio = (Contribution Margin / Sales Revenue) × 100

Contribution Margin Ratio = ($260 / $2,860,000,000) × 100

Contribution Margin Ratio ≈ 0.00908 × 100

Contribution Margin Ratio ≈ 0.908%

Therefore, the contribution margin ratio for Wang Company is approximately 0.908%. This means that for every dollar of sales, about 0.908 cents contribute towards covering the fixed costs and generating profits.