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What is the "contribution-sales ratio" where a Selling price per unit of $99, a Variable cost per unit of $66, and a Fixed costs of $495,000 are given? 

The details of the question are as follows: The directors of Upholland Ltd are planning for the launch of a new electronic game and are considering selling this new game for a Selling price per unit of $99. It anticipates that the Variable cost per unit will be $66 and the Fixed costs attributable to this product are $495,000. The directors have not factored in any risks in their estimation of selling price and costs. What is the contribution-sales ratio and its meaning?

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The contribution sales ratio is the contribution to the income of the company that each sale of a product has. Essentially, it is a factor or percentage that determines how much money the company earns for every extra dollar sold.

The contribution sales ratio is calculated by subtracting variable cost of sales from the sales revenue and dividing that number by the sales revenue. In this case, that comes out to the following:

(99 - 66)/(99) = 0.33, or 33%.

This means that for every dollar sold, the company earns 33 extra cents. I believe in an answer below, the educator accidentally swapped the sales in the denominator with variable costs, giving a higher contribution-sales ratio, but the steps are the same.

In that case, the company would break even when the sales tripled to the fixed costs, or at $1,350,000.

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The contribution sales or C/S ratio = (Sales revenue - Variable cost of sales)/Sales revenue x 100

Here, the sales revenue is $99 and the variable costs are $66. This gives the C/S ratio as (99 - 66)/66% = 50%

From the C/S ratio of 50%, we can infer that if the sales were to increase by $1, the increase in net operating income would be 50 cents.

The profits earned by the company is equal to the Total Sales*(C/S ratio) - Fixed costs

As the fixed cost required for this product is $450000, the company would break even when the sales are equal to $450000*2 = $900000.

If a company has a high C/S ratio, the net operating income is also impacted by a large extent if there is a change in the sales revenue.

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