Forrester Company is considering buying new equipment that would increase monthly fixed costs from $360,000 to $360,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $1,200,000 and current break-even units are 12,000. If Forrester purchases this new equipment, the revised contribution margin ratio would be: Question 9 options:

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Business

Allison Cortez

27 September, 00:48

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $360,000 to $360,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $1,200,000 and current break-even units are 12,000. If Forrester purchases this new equipment, the revised contribution margin ratio would be: Question 9 options:

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Answers (1)

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Elias Randolph · Answer 1

40%

Explanation:

The computation of contribution margin ratio as given below : -

Variable cost

= $70 - $10

= $60

Selling Price = $100

contribution margin ratio

= (selling price - variable cost) : selling price

= ($100 - $60) : 100

= $40 : 100

= 40%

Therefore for calculating the contribution margin ratio simply we deduct the variable cost from the selling price and divide by selling price.