If the contribution margin is $150,000 and the contribution ratio is 30% what is the total variable cost? :confused:

Basic Formulas:
1) Contribution Margin = Sales – VC
2) CM Ratio = (Sales-VC) / Sales


CM = Sales – VC
Let x = Sales and therefore x-150,000 is VC

CM = x – (x-150,000)
CM = x-x + 150,000
CM = 150,000

CM Ratio = [x – (x-150,000)] / x
CM Ratio = [x-x-+150,000] / x
CM Ratio = 150,000 / x
We know CM Ratio is .3
.30 = 150,000 / x
x = 150,000 / .3
x = 500,000

Therefore, Sales are $500,000 and therefore VC must be $350,000 (500,000-350,000)

And now, to verify our numbers…

1) Contribution Margin = Sales – VC
CM = 500,000 – 350,000 = 150,000

The question told us we have a CM of 150,000

2) CM Ratio = (Sales-VC) / Sales
CM Ratio = (500,000 – 350,000) / 500,000
CM Ratio = 150,000 / 500,000
CM Ratio = 0.3

The question told us we have a CM Ratio of .3 (or 30%)