Dirth Company Sells Only One Product at a Regular Price

question 68

Multiple Choice

Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to £6 per unit?

• A) 25%
• B) 40%
• C) 75%
• D) 60%

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Definitions:

Sold

Refers to the completion of a transaction where goods or services are exchanged for payment.

Recording Depreciation

The process of allocating the cost of a tangible asset over its useful life to reflect its decrease in value over time.

Expense Recognition Principle

An accounting principle stating that expenses should be recorded in the period in which they contribute to revenue, not necessarily when the expense is paid.

Fully Depreciated

An asset has reached the end of its useful life, and its book value is reduced to salvage value or zero.