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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Contribution margin ratio

  1. a. Yountz Company budgets sales of $2,400,000, fixed costs of $525,000, and variable costs of $1,560,000. What is the contribution margin ratio for Yountz Company?
  2. b. b. If the contribution margin ratio for Vera Company is 40%, sales were $3,400,000 and fixed costs were $800,000, what was the income from operations?

a.

To determine

Contribution Margin ratio: It is a ratio that measures the contribution margin generated by the company from the sales to make it avialable for paying the fixed cost and generate a profit. It is expressed as percentage of margin available from each dollar sales to pay fixed expenses and to provide profit. It is also called as profit-volume ratio. The formula to calculate the contribution margin ratio is as follows:

ContributionMarginRatio =ContributionMarginSales×100

To determine: contribution margin ratio for Y Company.

Explanation

Determine the contribution margin ratio for Y Company.

Sales =$2,400,000

Variable cost =$$1,560,000

ContributionMarginRatio =ContributionMarginSales×100=SalesVariablecostSales×100</

b.

To determine
the income from operations.

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