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Four sales staff report contribution margins of $14,700, $13,400, $22,100 and $17,400 on sales of $32,000, $40,000, $51,000 and $37,000 respectively. Who has the highest contribution margin ratio?
AThe fourth, at 47.0%
BThe third, at 43.3%
CThe first, at 45.9%
DThe second, at 33.5%
Answer & Solution
Correct answer: A. The fourth, at 47.0%
1. Divide each contribution margin by that person's own sales.
2. $14,700 over $32,000 is 45.9%.
3. $13,400 over $40,000 is 33.5%.
4. $22,100 over $51,000 is 43.3%.
5. $17,400 over $37,000 is 47.0%, the highest of the four.
6. The third seller earns the most margin in money, $22,100, yet ranks only third on ratio.
7. Judging on the dollar figure alone is the trap, since the sales mix each person sells drives the ratio.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.6 Contribution Margin Analysis_
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