QS 21-5 Contribution margin ratio LO A1 Compute and interpret the contribution margin ratio using the following data: sales, $5,000; total variable cost, $3,000.

QS 21-5 Contribution margin ratio LO A1

Compute and interpret the contribution margin ratio using the following data: sales, $5,000; total variable cost, $3,000. Explanation: Contribution margin  $5,000 – $3,000 = $2,000 Contribution margin ratio ($5,000 – $3,000) / $5,000 = 0.40 (or 40%) Interpretation: This result indicates 40 cents of each sales dollar is available to cover fixed costs and contribute to profit.