Perfect Clean, Inc. provides housekeeping services. The following financial data have been provided. Service Revenue $ 70 comma 000 Cleaning Supplies Used 22 comma 000 Wages Expense 18 comma 350 Office Rent Expense 5 comma 150 Depreciation Expenselong dashMachinery 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.)

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andromache andromache · Answer 1 · 2019-08-13T08:12:59+02:00

Answer:

The contribution margin is $29,650

The contribution margin ratio is 42.35%

Explanation:

Contribution Margin : The contribution margin shows a difference between sales revenue and variable cost.

For computing the contribution margin, the following formula is used which is shown below:

= Service revenue - Cleaning supplies - wages expenses

= $70,000 - $22,000 - $18,350

=$29,650

Thus, the contribution margin is $29,650

Now, the contribution margin ratio is a ratio between contribution margin and sales.

In mathematically,

Contribution margin ratio = Contribution ÷ Service revenue

= $29,650 ÷ $70,000

= 42.35%

Hence, the contribution margin ratio is 42.35%