Question

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.A. True
B. False

Answer 1

Answer:

False

Explanation:

The contribution margin will be higher for the company with the highest fixed expenses. Contribution margin = selling price - variable cost

For example:

                                         Company A                                 Company B

sales price per unit                $100                                            $100

total costs per unit                  $80                                              $80

variable costs per unit            $50                                              $40

fixed costs per unit                 $30                                              $40  

contribution margin                $50                                              $60