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Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
-At the current selling price of $70 per unit,the contribution margin ratio is:

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated as (Selling Price - Variable Costs) / Selling Price. With a selling price of $70 and variable costs being 40% of this price ($28), the contribution margin per unit is $42. Therefore, the contribution margin ratio is $42 / $70 = 0.6 or 60%.

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