Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 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 $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised contribution margin ratio would be:
A) 30%.
B) 60%.
C) 40%.
D) 10%.
E) 70%.
C) 40%.
Explanation: New contribution margin ratio = ($100 - $60)/$100 = 40%
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