Question

When sales increase by 9%, which of the following should also increase by 9% in a merchandising company?(A) Variable cost(B) Fixed cost(C) Gross margin(D) Contribution margin(E) Net operating income

Answer 1

Answer:

(A) Variable cost

(C) Gross margin

D) Contribution margin

Explanation:

mathematically:

Gross Margin = Sales – cost of goods sold

for constant cost of good sold, an increase in sales alternately increases the gross margin.

and

Contribution Margin = Sales – Variable costs

as sales increase, the variable cost has to increase so as well the contribution margin has to increase.