Kumar produces large decorative tiles used in home decor.The tiles sell for $700 and the fixed monthly operating costs are as follows:

Kumar's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.70 went to cover his fixed costs,and that anything past that point was pure profit.
Kumar is planning to increase the selling price to $760.What impact will the increase in selling price have on the contribution margin ratio?
A)It will stay the same.
B)It will go up from 70% to 72%.
C)It will go up from 70% to 79%.
D)It will go down from 79% to 72%.

Question

Kumar produces large decorative tiles used in home decor.The tiles sell for $700 and the fixed monthly operating costs are as follows:

Kumar's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.70 went to cover his fixed costs,and that anything past that point was pure profit.
Kumar is planning to increase the selling price to $760.What impact will the increase in selling price have on the contribution margin ratio?
A)It will stay the same. 
B)It will go up from 70% to 72%. 
C)It will go up from 70% to 79%. 
D)It will go down from 79% to 72%.

Quizplus · Accepted Answer

C)Contribution margin per unit = $700 × 0.70 = $490
Revised contribution margin = $490 + ($760 - $700)= $490 + $60 = $550
Contribution margin ratio = ($490 / $760)× 100 = 72%

Kumar Produces Large Decorative Tiles Used in Home Decor