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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 reduced selling price of $65 per unit,the contribution margin ratio is: (Round the answer to one decimal place. )

Question

Quizplus · Accepted Answer

Contribution margin ratio = (selling price - variable cost per unit) / selling price
At the current selling price of $70:
Variable cost per unit = 40% of $70 = $28
Contribution margin ratio = ($70-$28)/$70 = 60%
At the reduced selling price of $65:
Variable cost per unit remains the same at $28
Contribution margin ratio = ($65-$28)/$65 = 56.9%
Therefore, the contribution margin ratio at the reduced selling price of $65 per unit is 56.9%. This means that 56.9% of each sale will contribute to covering the fixed costs and generating a profit. The best choice is B.

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