Question

Accents Associates sells only one product, with a current selling price of $150 per unit. Variable costs are 30% of this selling price, and fixed costs are $19,600 per month. Management has decided to reduce the selling price to $145 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $150 per unit, the contribution margin ratio is:

Answer 1

0.7

Step-by-step explanation:

Given the following :

Current sales price per unit = $150

Variable cost per unit = 30% of sales price

30% of sales price

0.3 × $150 = $45

Contribution margin ratio :

Contribution margin ratio = (sales price per unit - variable cost per unit) / sales price per unit

Contribution margin ratio:

$(150 - 45) / $150

$105 / $150 = 0.7

= 70%