Question

Question 14
When a products selling price and variable expenses both decrease by 7% (assuming no change to fixed expenses)- what would be the effect on the CM per unit and the CM ratio?
Contribution marrin per unit
Decrease
Decrease
No change
No change
Contribution marrin ratio
Decrease
No change
Decrease
No change

Answer 1

Answer:

Decrease

No change

Explanation:

As we know that

Contribution margin ratio = [(Sales - Variable Costs) ÷ (Sales) ]

Now in the case when the selling price and the variable cost would decreased by 7% so the sales and variable cost would decreased by the similar amount so there is no change in the contribution margin ratio

Also

Contribution Margin per Unit = Sales revenue per Unit - Variable Expenses per unit

Now if the  selling price and the variable cost would decreased by 7% so the contribution margin would also decrease