Question

Lie Around Fumiture manufactures two products: Couches and Beds. The following data are available Couches $540.00 Beds $740.00 $385.00 Sales price $350.00 Variable costs The company can manufacture either two couches per machine hour or one bed per machine hour. The company's production capacity is 5,600 machine hours per month. What is the contribution margin ratio for Couches? OA. 54.29 % O B. 16.48% O C. 35.19% D. 47.97 %

Answer 1

Solution :

The formula for calculating the contribution margin ratio is

= ( Sales price – Variable costs) / Sales price

As per the information given in the question we have

Sales price per couch = $ 540    ;      Variable costs per couch= $ 350

Applying the above information in the contribution margin ratio we have

= ( $ 540 - $ 350 ) / $ 540

= $ 190 / $ 540

= 0.351852

= 35.1852 %

= 35.19 % ( when rounded off to two decimal places )

Thus the contribution margin ratio of the couches = 35.19 %

The solution is option C. 35.19 %