Q25E
Question
Using variable costing, service company Sherman Company provides carpet cleaning services to commercial and residential customers. Using the data below, determine the contribution margin ratio for each business segment, rounded to two decimal places:
Step-by-Step Solution
Verified Answer
The contribution margin ratio of the commercial and residential segmentsis 55% and 76% respectively.
1Step 1: Calculation of total contribution margin ratio for the commercial segment
Contribution Margin Ratio = Contribution Margin / Service Revenue
=$77,000/$140,000
=55%
2Step 2: Calculation of total contribution margin ratio for the residential segment
Contribution Margin Ratio = Contribution Margin / Service Revenue
=$182,400/$240,000
=76%
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