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 current selling price of $170 per unit, the contribution margin ratio is approximately:

Multiple Choice

• 21.3%.

• 76.4%.

• 23.5%.

• 34.7%.

Answer 1

Contribution margin ratio

= (Selling price - Variable costs) /Selling price

= (170 - 130)/170

= 23.5%

Option C is the answer