To calculate the contribution margin ratio, we need to determine the contribution margin first, and then divide that by the sales.
Here's how you calculate it:
Contribution Margin = Sales - Variable Costs
Contribution Margin Ratio = (Contribution Margin / Sales) * 100
Given:
Sales = $425,000
Variable Costs = 62% of Sales = 0.62 * $425,000
Operating Income = $50,000
Now we can calculate the Variable Costs in dollars:
Variable Costs = 0.62 * $425,000 = $263,500
Next, we calculate the Contribution Margin:
Contribution Margin = Sales - Variable Costs = $425,000 - $263,500 = $161,500
Now we can calculate the Contribution Margin Ratio:
Contribution Margin Ratio = ($161,500 / $425,000) * 100 = (0.38) * 100 = 38%
The Contribution Margin Ratio is therefore 38%.
Correct answer:
D. 38%
