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Which of the following equations is true? Select one: a. Contribution margin = Sales revenue × Variable cost ratio b. Contribution margin = Fixed costs c. Contribution margin ratio = 1 − Variable cost ratio d. Contribution margin ratio = Contribution margin / Variable costs

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Answer: c. Contribution margin ratio = 1 − Variable cost ratio

Explanation:

The Contribution margin ratio is defined as the difference between the sales price of a good and it's variable costs. It is expressed as a percentage.

The formula is,

Contribution Margin Ratio = Sales - Variable Costs / Sales

Breaking the formula down further we have,

Contribution Margin Ratio = Sales/ Sales - Variable Costs / Sales

Contribution Margin Ratio = 1 - Variable Costs / Sales

Variable Cost/Sales is the Variable Cost Ratio.

So Option C is correct.

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