Answer (D) is correct . Allred’s contribution margin ratio reveals that 45% of the sales price of each product is contribution margin. Thus, 55% of the sales price goes to variable costs (100% – 45%), making the per-unit variable cost $16.50 ($30 × 55%). Since Allred sold 1,000 units in the current month, total variable costs were $16,500 (1,000 × $16.50).
Answer (A) is incorrect because The amount of $9,900 results from improperly applying a variable cost ratio of 33% rather than the correct ratio of (1 – contribution margin ratio).
Answer (B) is incorrect because The amount of $12,000 results from applying the tax rate rather than the variable cost ratio (1 – contribution margin ratio).
Answer (C) is incorrect because The amount of $13,500 results from reversing the gross margin ratio.
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