Accents Associates sells only one product, with a current selling price of $40 per unit. Variable costs are 20% of this selling price, and fixed costs are $20,000 per month. Management has decided to reduce the selling price to $35 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.

At the current selling price of $40 per unit, the contribution margin ratio is:

Multiple Choice

• 80%

• 20%

• 8%

• 160%