Answer:
contribution margin = $237,000
Explanation:
If sales volume increases by 20%, the sales revenue will increase by 20%. Therefore, the new sales revenue is = $395,000 + ($395,000 × 20%) = $395,000 + 79,000 = $474,000
If sales revenue increases, the variable expenses will also increase by 20%. The new variable expense is = $197,500 + ($197,500 × 20%) = $197,500 + 39,500 = $237,000
We know, sales revenue - variable expenses = contribution margin.
If sales volume increases by 20%,
The new contribution margin = $474,000 - $237,000 = $237,000
