Answer:
contribution margin = $237,000
Explanation:
If sales volume increases by 20%, the sales revenue will increase by 20%. Therefore, the new sales revenue is = $395,000 + ($395,000 × 20%) = $395,000 + 79,000 = $474,000
If sales revenue increases, the variable expenses will also increase by 20%. The new variable expense is = $197,500 + ($197,500 × 20%) = $197,500 + 39,500 = $237,000
We know, sales revenue - variable expenses = contribution margin.
If sales volume increases by 20%,
The new contribution margin = $474,000 - $237,000 = $237,000
Answer:
$237,000
Explanation:
The contribution margin is the difference between the sales and the variable cost. Both are determined by the level of activities and the unit price and variable cost respectively.
If the sales volume increases by 20%, the same effect will happen to the variable cost while the fixed cost may remain constant at this change in the level of activities.
Therefore since
Contribution margin
= Total Sales - Total variable cost
An increase of 20% in sales volume would give a contribution margin
= 1.2($395,000 - $197,500)
= 1.2 × $197,500
= $237,000
