Please answer with explanation. Contribution Margin and Ratio g Accounting Compa

Question

Please answer with explanation.

Contribution Margin and Ratio g Accounting Company has the following information as of December 31: Sales Payroll Supplies Occupancy General & Selling $50,000 23,750 6,500 2,000 3,900 Income from Operations $13,850 Assume Variable costs consist of Payroll, Sup plies, 15% of Occupancy costs, and 60% of the General & Selling Costs. a) What was the contribution margin? b) What was the contribution margin ratio What would the increase in income from operations be if sales increased by $18,000 and there was no change in contribution margin or fixed costs? c)

Explanation / Answer

a. Calculation of contribution Margin Contribution Margin= Sales-variable cost Amount ($) Selling Price 50000 Less: variable cost Payroll 23750 Supplies 6500 15% of occupancy cost (2000*15%) 300 60% of General & sellimg (3900*60%) 2340 Contribution Margin 17110 Contribution margin is calculated by formula sales - variable cost So, only variable expenses is taken into account. b. Contribution Margin ratio = (Contribution/sales)*100 $ (17110 /50000)*100 34.2 % c. Contribution margin ratio shows the change in contribution when sales amount changes. So in the given question: Change is sales ($) 18000 b. Contribution Margin ratio (%) 34.2 Change in contribution ($) Change in sales* contribution margin ratio 18000*34.2% 6156 Now, Change in Income = change in Contribution- Change in Fixed cost                  =6156-0 (Given in question)                  =6156 Change in income                                     = $ 6156

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