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Kai sells a small magazine full of celebrity gossip to college students for $2.65 per copy. Hiring the printing press for one day, the only fixed cost, is $435 an issue. The variable cost of printing each issue is $0.82 per copy. The printer tells Kai the cost of hiring the press is to increase by $116 per day. If changing to color increases variable costs by $0.40, what is the percentage decrease in contribution margin resulting from the switch to color?

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facundobuzzetti

Answer:

Percentage decrease= 21.86%

Step-by-step explanation:

Giving the following information:

Selling price per unit= $2.65

Current variable cost= $0.82

Increase in variable cost= $0.4

To calculate the unitary contribution margin, we need to use the following formula:

Unitary contribution margin= selling price - unitary variable cost

Unitary contribution margin= 2.65 - 0.82

Unitary contribution margin= $1.83

New contribution margin= 2.65 - 1.22

New contribution margin= $1.43

Finally, the percentage decrease:

Percentage decrease= [1 - (1.43/1.83)]*100

Percentage decrease= 21.86%

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