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Point 1: Accents Associates sells only one product, with a current selling price of $70 per unit. Variable costs are 40% of this selling price, and fixed costs are $12,000 per month. Management has decided to reduce the selling price to $65 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.
Question 1: At the current selling price of $70 per unit, the contribution margin ratio is:
Option 1: 40%.
Option 2: 60%.
Option 3: 67%.
Option 4: 120%.
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