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BrewCo sells coffeemakers for $120 each. The firm currently has variable costs per unit of $65. If BrewCo is able to reduce its variable cost per unit to $58, its contribution margin ratio will _____

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Answer:

The contribution margin ratio will increase.

Explanation:

Giving the following information:

BrewCo sells coffeemakers for $120 each. The firm currently has variable costs per unit of $65. BrewCo can reduce its variable cost per unit to $58.

Contribution margin ratio= (selling price - unitary variable cost)/selling price

New Contribution margin ratio= (120 - 58)/120= 0.52

Old Contribution margin ratio= (120 - 65)/120= 0.46

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