Question

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) The selling price that would maintain the same contribution margin ratio as last year is:

Answer 1

Answer:

$10.00

Explanation:

Calculation to determine The selling price that would maintain the same contribution margin ratio as last year is

Based on the information given since variable cost increased by one-third (1/3) which means that the selling price amount has to as well increase by the same one-third (1/3) in order to maintain the same contribution margin ratio as last year.

Hence:

Selling price =$7.50+(1/3*$7.50)

Selling price=$7.50+$2.50

Selling price=$10.00

Therefore The selling price that would maintain the same contribution margin ratio as last year is $10.00