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A hotel reports a contribution margin of $51,100 for the month against total fixed costs of $38,900. What is its operating income?
A$32,900
B$16,800
C$51,100
D$12,200
Answer & Solution
Correct answer: D. $12,200
1. All fixed costs are deducted from contribution margin in one block.
2. Rent, salaries, depreciation and insurance together come to $38,900.
3. $51,100 minus $38,900 gives operating income of $12,200.
4. $32,900 is the total variable cost, which was already removed before contribution margin.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.6 Contribution Margin Analysis_
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