The Skyways Company is currently selling its single product for $15. Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month. If Skyways increases its selling price by 10%, its variable cost ratio will:
A) not change.
B) decrease.
C) increase.
D) Cannot determine with the information given.

Question

Quizplus · Accepted Answer

The variable cost ratio is calculated as variable costs divided by selling price. If the selling price increases by 10%, the variable costs remain at 70% of the original selling price, thus the ratio of variable costs to the new selling price will decrease.

The Skyways Company Is Currently Selling Its Single Product for $15