During a recent fiscal year, Creek Company reported pretax income of $125,000, a contribution margin ratio of 25% and total contribution margin of $400,000. Total variable costs must have been:

475,000

Explanation:

Hey there! For this question, we will be using the COGS and SG&A formulas.

Basic Formula: Revenue - COGS - SG&A = Pretax profits

How do you calculate the SG&A?

Well, SG & A = (Contribution - Prextax income)  

SG & A = ($400,000 - $125,000)

SG & A= $275,000

What's next?

Now, you must calculate for revenue.

Contribution margin/Revenue = Contribution Margin Ratio  

Revenue = Contribution Margin/Contribution Margin Ratio  

Revenue = $400,000/.25  

Revenue = $1.1m

Now, let's use the COGS formula.

COGS: Starting inventory + purchases - ending inventory = cost of goods sold

Revenue - COGS - SG&A = Pretax profits  

1.1m - COGS - 400k = 125k  

COGS = $1.1m - $125k - $400k

Final 1.100 Million (1,000,000)

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