Question

Kai sells a small magazine full of celebrity gossip to college students for $2.73 per copy. Hiring the printing press for one day, the only fixed cost, is $306 an issue. The variable cost of printing each issue is $0.97 per copy. The printer tells Kai the cost of hiring the press is to increase by $103 per day.

f changing to color increases variable costs by $0.40, what is the percentage decrease in contribution margin resulting from the switch to color?

Answer 1

To find the percentage decrease in contribution margin, calculate the change in contribution margin from the increase in variable costs due to color printing, divide by the original contribution margin, and multiply by 100, resulting in a 22.73% decrease.

Step-by-step explanation:

The student's question involves calculating the percentage decrease in contribution margin resulting from an increase in variable costs when switching a magazine to color printing. Contribution margin is the selling price per unit less the variable cost per unit. Initially, the selling price is $2.73, and the variable cost is $0.97, while after the switch, the variable cost increases by $0.40 due to color printing.

To calculate the original contribution margin, we subtract the initial variable cost from the selling price: $2.73 - $0.97 = $1.76. After switching to color, the new variable cost is $0.97 + $0.40 = $1.37, so the new contribution margin is $2.73 - $1.37 = $1.36.

To find the percentage decrease in contribution margin, we calculate the change in contribution margin, divide it by the original contribution margin, and multiply by 100: (($1.76 - $1.36) / $1.76) * 100 = 22.73%.