Noel & Vang Company sells only one product at a regular price of $9.00 per unit. Variable expenses are 55% of sales, and fixed expenses are $40,000. Management has decided to decrease the selling price to $8.00 in the hope of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to $8.00 per unit? (Note: Round answer to two decimal places.)

Question

Business

Berg

4 July, 13:34

Noel & Vang Company sells only one product at a regular price of $9.00 per unit. Variable expenses are 55% of sales, and fixed expenses are $40,000. Management has decided to decrease the selling price to $8.00 in the hope of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to $8.00 per unit? (Note: Round answer to two decimal places.)

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Kian · Answer 1

Contribution margin ratio = 38.13%

Explanation:

Giving the following information:

Noel & Vang Company sells only one product at a regular price of $9.00 per unit. Variable expenses are 55% of sales, and fixed expenses are $40,000. Management has decided to decrease the selling price to $8.00 in the hope of increasing its volume of sales.

Contribution margin ratio = [ (price - variable cost) / price]

= [ (8-4.95) / 8] = 0.3813 = 38.13%