Question

Which of the following would produce the largest increase in the contribution margin per unit? A 14% increase in variable cost. A 17% decrease in fixed cost. A 15% decrease in selling price. A 7% increase in selling price. A 23% increase in the number of units sold.

Answer 1

Answer:

A 7% increase in selling price.

Explanation:

Contribution margin refers to the difference between selling price and variable cost.

Contribution margin:

= Selling price - Variable cost

Net income:

= Contribution margin - Fixed cost

(i) 14% increase in variable cost:

It cannot, because it will decrease the contribution margin.

(ii) 17% decrease in fixed cost:

It cannot affect the contribution margin.

(iii) 15% decrease in selling price:

No, it will reduce the contribution margin.

(iv) 7% increase in selling price:

Yes, it will increase the contribution margin since there is an increase in the selling price.

(v) 23% increase in the number of units sold:

No, it will not impact the selling price or variable cost.