Homework Answers
Earnings = $700,000
Less: Variable cost = $478,000
Contribution Margin = $222,000
Contribution Margin ratio = $222,000 / $700,000 = 0.32
Price decreased by 5%,
So, Earnings will be $700,000 * (95%) = $665,000
Less: Variable cost = $478,000
Contribution Margin = $187,000
Contribution Margin ratio = $187,000 / $665,000 = 0.28
So, Margin ratio after price decrease = 0.28
option '2' is correct
0.28
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