Based in Italy, Datura, Ltd., in an international importer-exporter of pottery w

Question

Based in Italy, Datura, Ltd., in an international importer-exporter of pottery with distribution centers in the United States, Europe, and Australia. The company was very successful in its early years, but its profitability has since declined. As a member of a management team selected to gather information for Datura's next strategic planning meeting, you have been asked to review its most recent contribution margin income statement for the year ended December 31, 2015, which follows: REQUIRED: Historically, Datura's variable costs have been about 60 percent of sales. What was the ratio of variable costs to sales in 2015 (round to two decimal places)?

Explanation / Answer

Sales $ 13,500,000 Variable Cost Purchase $   6,000,000 Distribution $   2,115,000 Sales Commission $   1,410,000 Total Variable Cost $   9,525,000 Variable Cost/Sales 70.56%

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