Kumar Produces Large Decorative Tiles Used in Home Decor Kumar's Accountant Told Him About Contribution Margin Ratios and He

question 28

Multiple Choice

Kumar produces large decorative tiles used in home decor.The tiles sell for $700 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 1,100 \\\hline \text { Management salaries } & 2,500 \\\hline \text { Other expenses } & 530 \\\hline\end{array}$$ Kumar's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.70 went to cover his fixed costs,and that anything past that point was pure profit.
Kumar is planning to increase the selling price to $760.What impact will the increase in selling price have on the contribution margin ratio?

• A) It will stay the same.
• B) It will go up from 70% to 72%.
• C) It will go up from 70% to 79%.
• D) It will go down from 79% to 72%.

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Definitions:

Equipment Depreciation

Equipment depreciation is the process of allocating the cost of physical equipment over its useful life, reflecting wear and tear or obsolescence.

Allocating Expenses

The process of assigning costs to the appropriate department, project, or product, often based on their use or benefit derived.

Departments

Divisions within an organization or company, each responsible for specific areas of operation or functions.

Allocating Expenses

The process of assigning costs to various accounts or departments within a company.