Sheffield corp. reported the following information for the current year: sales (45000 units) $9, direct materials and direct labor $45, other variable costs $45000, and fixed costs $36. what is sheffield’s contribution margin ratio?

The Sheffield’s contribution margin ratio is 45%

Explanation:

The formula to compute the contribution margin ratio is shown below:

Contribution margin ratio = Contribution margin ÷ Sales

where,

Contribution margin = Sales - variable cost

The variable cost includes

= Direct material & Direct labor + Other variable cost

= $450,000 + $45,000

= $495,000

And, the sales is $900,000

So, the contribution margin is equals to

= $900,000 - $495,000

= $405,000

Thus , the contribution margin ratio is equals to

= $405,000 ÷ $900,000

= 45%

The fixed cost is not considered in the computation part. So, it is not taken

Hence, the Sheffield’s contribution margin ratio is 45%