The impact of this change on total contribution margin would be : decrease in contribution margin by $3,000
<h3>What is contribution margin?</h3>
Contribution margin is a product's price minus all associated variable costs, resulting in the incremental profit earned for each unit sold.
In this question, we have to apply the contribution margin formula which is shown below:
Contribution margin = Sales - variable cost
Where,
Sales = Selling price per pillow × number of pillows sold
= $25 × $1,200
= $30,000
And, the variable cost
= Variable cost per pillow × number of pillows sold
= $15 × $1,200
= $18,000
So, the contribution margin equals to
= $30,000 - $18,000
= $12,000
Now due to material improvement,
The new Sales
= Selling price per pillow × updated number of pillows sold
= $25 × $1,500
= $37,500
And, the variable cost
= Variable cost per pillow × updated number of pillows sold
= $15 × $1,500
= $22,500
So, the new contribution margin equals to
= $37,500 - $22,500
= $15,000
Hence, the contribution margin decrease by $3,000 ($15,000 - $12,000)
Learn more about contribution margin here : brainly.com/question/24309427
