Answer (C) is correct . Last year, unit variable cost was $2.25, so the unit contribution margin (UCM) was $5.25 ($7.50 price – $2.25), and the contribution margin rate (CMR) was 70% ($5.25 ÷ $7.50). If variable costs increase by one-third, the new variable cost will be $3 [$2.25 × (4 ÷ 3)]. If a 70% CMR is desired, the $3 variable cost will be 30% of sales, and the unit sales price will be $10 ($3 ÷ 30%).
Answer (A) is incorrect because The expected price is $9.00, not the price with the same CMR.
Answer (B) is incorrect because The sum of the old UCM and the new unit variable cost is $8.25.
Answer (D) is incorrect because This amount is the sum of last year’s sales price of $7.50 and last year’s variable cost of $2.25.
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The selling price that would maintain the same contribution margin rate as last year is
