Wiser Group sells a single product for $30 per unit. The variable costs for each unit are $7.50, while the total fixed costs are $4,500. If a 10% sales commission is introduced what is the new Contribution Margin Ratio?

Question

Quizplus · Accepted Answer

Contribution Margin Ratio (CMR) is calculated as follows:
CMR = (Sales price per unit - Variable cost per unit) / Sales price per unit

Current CMR = (30 - 7.50) / 30 = 75%
If a 10% sales commission is introduced, the new sales price per unit will be $33 ($30 + $3 commission). So, the new CMR will be:
New CMR = (33 - 7.50) / 33 = 77.27%
Therefore, the new CMR will be 77.27%, which is a 2.27% increase from the current CMR of 75%. The best choice is B.

Wiser Group Sells a Single Product for $30 Per Unit