A cement manufacturer has supplied the following data: Tons of cement produced and sold 260,000 Sales revenue $1,118,000 Variable manufacturing expense $429,000 Fixed manufacturing expense. $288,000 Variable selling and administrative expense $91,000 Fixed selling and administrative expense $228,000 Net operating income \u2026. $82,000 The company’s contribution margin ratio is closest to: 46.5% 53.5% 7.4% 42.8%<\/p>\n\n\n\n
The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n To calculate the contribution margin ratio<\/strong>, we need to first find the contribution margin and then divide it by sales revenue.<\/p>\n\n\n\n The contribution margin is the difference between sales revenue<\/strong> and total variable costs<\/strong> (variable manufacturing expenses + variable selling and administrative expenses).<\/p>\n\n\n\n [ [ [ The contribution margin ratio<\/strong> is 53.5%<\/strong>.<\/p>\n\n\n\n The contribution margin ratio measures how much of each dollar of sales contributes to covering fixed costs and generating net operating income after covering variable costs. In this case, for every dollar of sales, approximately 53.5 cents<\/strong> contributes to covering fixed expenses and profits.<\/p>\n\n\n\n This ratio is vital for decision-making because it highlights the proportion of sales revenue available to cover fixed costs and profit generation. Since the fixed costs (manufacturing and selling\/administrative) are $288,000 + $228,000 = $516,000<\/strong>, the company\u2019s contribution margin of $598,000<\/strong> sufficiently covers these fixed costs, leaving $82,000<\/strong> as net operating income.<\/p>\n\n\n\n The 53.5%<\/strong> ratio reflects a healthy margin, suggesting effective cost control over variable expenses while maintaining profitability.<\/p>\n","protected":false},"excerpt":{"rendered":" A cement manufacturer has supplied the following data: Tons of cement produced and sold 260,000 Sales revenue $1,118,000 Variable manufacturing expense $429,000 Fixed manufacturing expense. $288,000 Variable selling and administrative expense $91,000 Fixed selling and administrative expense $228,000 Net operating income \u2026. $82,000 The company’s contribution margin ratio is closest to: 46.5% 53.5% 7.4% 42.8% 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1: Calculate Contribution Margin<\/h3>\n\n\n\n
\\text{Total Variable Costs} = \\text{Variable Manufacturing Expense} + \\text{Variable Selling and Administrative Expense}
]
[
\\text{Total Variable Costs} = 429,000 + 91,000 = 520,000
]<\/p>\n\n\n\n
\\text{Contribution Margin} = \\text{Sales Revenue} – \\text{Total Variable Costs}
]
[
\\text{Contribution Margin} = 1,118,000 – 520,000 = 598,000
]<\/p>\n\n\n\nStep 2: Calculate Contribution Margin Ratio<\/h3>\n\n\n\n
\\text{Contribution Margin Ratio} = \\frac{\\text{Contribution Margin}}{\\text{Sales Revenue}}
]
[
\\text{Contribution Margin Ratio} = \\frac{598,000}{1,118,000} \\approx 0.535 \\, \\text{or} \\, 53.5\\%
]<\/p>\n\n\n\nCorrect Answer:<\/h3>\n\n\n\n
\n\n\n\nExplanation:<\/h3>\n\n\n\n