Question

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? Contribution Margin Ratio Break-even Point
A) Increase Decrease
B) Decrease Decrease
C) Increase No effect
D) Decrease No effect
a. Choice A
b. Choice B
c. Choice C
d. Choice D

Answer 1

Answer:

A.

Explanation:

The Contribution Margin Ratio is the ratio of contribution margin to sales revenue.

Contribution Margin Ratio = contribution margin / sales revenue

Contribution Margin = sales price - variable cost

If the sale price is increasing, and the variable cost remains the same, the contribution margin is going to increase.

Break even point shows the amount of sales volume where the total cost is equal to the company´s full income. The point where total costs are equal total revenue is known as the break even point.

If sales increase, and the costs remains the same, the break even point is going to decrease.