Question

BKK Corporation sells headphones with a unit selling price of $200 and a contribution margin ratio of 40%. Unit variable costs are expected to increase $10 next year with no change to the unit selling price. Calculate the new contribution margin ratio.

Answer 1

Based on the selling price and the variable costs, the new contribution margin ratio would be 35%.

What would be the new contribution margin ratio?

First find the new contribution margin which is:
= Selling price - Variable cost

Solving gives:

= 200 - ( (60% x 200) + 10)

= 200 - (120 +10)

= $70

The contribution margin ratio will be:

= Contribution margin / Selling price

= 70/ 200

= 35%

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