Unformatted text preview: plan)? Contribution margin ratio = (Contribution/ sales) x 100 Old Plan: Contribution margin ratio = (25/ 56) x 100 = 44.6% New Plan: Contribution margin ratio = (22/56) x 100 = 39.3% The profitability at very high volume levels will not be as good as it would be under old plan. Under the old plan the contribution margin ratio is around 45% after the break-even level is crossed (where the fixed costs are completely absorbed) the profit realised would be at the rate of 45% of sales. Whereas under the new plan the profit realised would be only 39%. Thus when the sales volumes are high the profitability under the old plan would be better than the new plan....
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- Spring '11
- $150,000, $200,000, $34, 39%, $31, Eaton Tool Company