)”
Current Approach
Automated Approach
Sales
$2,000,000
$2,000,000
Variable costs
1,200,000
400,000
Contribution margin
800,000
1,600,000
Fixed costs
200,000
600,000
Net income
$ 600,000
$1,000,000
Instructions
(a)
Compute and interpret the contribution margin ratio under each approach.
The formula for calculating the contribution margin ratio is:
Sales – Variable Costs
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