The Blue 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 Blue increases its selling price by 10%,its variable cost ratio will:

Question

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If Blue increases its selling price by 10%, the new selling price would be $16.50 ($15 x 1.10). Since variable costs are expected to remain at 70% of the selling price, the variable cost per unit would be $11.55 ($16.50 x 0.70), which is lower than the current variable cost of $10.50 ($15 x 0.70). Therefore, the variable cost ratio would decrease.

The Blue Company Is Currently Selling Its Single Product for $15.Variable