Garfield corporation is considering building a new plant in canada. it predicts sales at the new plant to be 50,000 units at $5.00/unit. below is a listing of estimated expenses. category total annual expenses % of annual expense that are fixed materials $50,000 10% labor $90,000 20% overhead $40,000 30% marketing/admin $20,000 50% a canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price. no u. s. home office expenses will be allocated to the new facility. the contribution margin ratio for garfield corporation is

Contribution Margin Ratio = 0.33

Explanation:

Our first goal:

Calculate the Contribution margin:

Sales 50,000 * 5$ = 250,000

Variable Expenses

Materials 50,000 (1-10%)           = 45,000

Labor 90,000 (1-20%)                = 72,000

Overhead 40,000 (1-30%)         = 28,000

M&Admin 20,000 (1-50%)         = 10,000

Sales Commision 250,000 5% =12,500

Total Variable Cost                    = 167,500

Contribution Margin 250,000-167,500 = 82,500

Notice in your table you have the percent of fixed cost per line, so the rest is variable cost.

Now we calculate the CM ratio

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