If a hospital’s sales are $500,000, variable costs are $200,000 and fixed costs are $240,000, what is the contribution margin ratio?
Explanation
Answer: D- If a hospital’s sales are $500,000, variable costs are $200,000 and fixed costs are $240,000, the contribution ratio is 60%. The contribution ratio indicates the percentage of each sales dollar available to cover the fixed costs and provide income from operations. The formula is as follows: sales ($500,000) minus variable costs ($200,000) divided by the sales ($500,000) equals the contribution margin ratio (60%).
