Question

If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the breakeven point respectively? Contribution Breakeven Margin Ratio Point A decreased increased B increased decreased C decreased decreased D increased increased

Answer 1

Answer:

Option (b) is correct.

Explanation:

Contribution margin ratio is the difference between the selling price of the product and the variable cost of the product.

Contribution margin ratio = Selling price - Variable cost

Now, if there is a decrease in the fixed costs and variable costs of the product then as a result contribution margin ratio increases because of the fall in variable cost.

Break even point = (Fixed expense ÷ Contribution margin ratio)

If there is an increase in the contribution margin ration and a reduction in the fixed expense then as a result break even point decreases.

Increased; Decreased