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10 October, 00:57

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 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 $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised contribution margin ratio would be: Multiple Choice 30%. 60%. 40%. 10%. 70%.

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  1. 10 October, 04:17
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    40%

    Explanation:

    The computation of the revised contribution margin ratio is shown below:

    Contribution margin per unit = (Selling price per unit - variable cost per unit) : Selling price per unit

    where,

    Selling price per unit is $100 per unit

    And, the variable cost per unit is

    = $70 - $10

    = $60 per unit

    So, the revised contribution margin ratio is

    = ($100 - $60) : 100

    = 40%
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