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11 February, 14:07

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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  1. 11 February, 14:35
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    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.
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