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Manufacturing margin is $375,000 and variable selling and administrative expenses are $75,000. What is the contribution margin?
A$375,000
B$300,000
C$200,000
D$100,000
Answer & Solution
Correct answer: B. $300,000
1. Contribution margin is what remains after every variable cost has been deducted from sales.
2. $375,000 of manufacturing margin minus $75,000 of variable selling costs gives $300,000.
3. That $300,000 is the pool available to pay all fixed costs.
4. With total fixed costs of $200,000, operating income comes out at $100,000.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.1 Introduction_
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