Question

Griggs Company produces a single product with a current selling price of $170. Variable costs are $130 per unit, and fixed costs per month average $6,240. Management is considering increasing the selling price to a proposed $190 per unit. Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.

Hint: Treat each situation (current and proposed price) as separate potential scenarios when evaluating each question.

At the proposed increased selling price of $190 per unit, the contribution margin ratio is closest to:

Multiple Choice

• 50.8%.

• 31.6%.

• 68.4%.

• 60.2%.

Answer 1

Contribution margin ratio

= (Revised selling price - Variable costs) /Revised selling price

= (190 - 130)/190

= 31.6%

Option B is the answer