Wendall Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales,and fixed expenses are $30,000.Management has decided to decrease the selling price to $6 in hopes of increasing its volume of sales.What is the contribution margin ratio when the selling price is reduced to $6 per unit?
A)25%
B)40%
C)60%
D)75%

Question

Quizplus · Accepted Answer

The contribution margin per unit is calculated as the selling price minus variable expenses per unit. With a selling price of $6 and variable expenses being 60% of sales, the variable expenses per unit are $3.60 (60% of $6). Thus, the contribution margin per unit is $6 - $3.60 = $2.40. The contribution margin ratio is then $2.40 / $6 = 0.40 or 40%.

Wendall Company Sells Only One Product at a Regular Price