Perfect Clean, Inc. provides housekeeping services. The following financial data have been provided.
| Service Revenue | $80,000 |
| Cleaning Supplies Used | 22,000 |
| Wages Expense | 19,350 |
| Office Rent Expense | 5,150 |
| Depreciation Expense—Machinery | 550 |
Calculate the contribution margin and the contribution margin ratio. (Round your contribution margin to the nearest dollar, and your contribution margin ratio to two decimal places.)
- A) $38,650; 48.31% B) $74,850; 93.56%
- C) $60,650; 75.81% D) $32,950; 41.19%
Answer
- A) $38,650; 48.31%
Working notes for the above answer is as under
In simple term we could say that, contribution margin ratio is is the selling price per unit minus the variable cost per Unit. Contribution cover portion of Fixed assets plus profit
contribution margin and the contribution margin ratio for Perfect Clean, Inc. is as follow
Particular
Amount in $
Service Revenue
80,000
Less: variable Cost
Cleaning Supplies Used
22000
Wages Expense
19350
Contribution Margine
38,650
Less: Fixed Cost
Office Rent Expense
5150
Depreciation Expense—Machinery
550
Net Income
32,950
contribution margin ratio
= contribution / Sales
=38650/80000
=48.31%
