Question

A shift towards a higher proportion of sales of products with a higher contribution margin per unit will most likely result in a(n

Answer 1

Answer:

If products with a higher contribution margin increase their weight in a company's sales mix, that will lead to a higher total contribution margin, and a higher operating profit.

Explanation:

E.g. a company sells 2 products, and it sells them in equal proportion:

• 100 units of product A, which has a contribution margin per unit of $5
• 100 units of product B, which has a contribution margin per unit of $7

Total contribution margin = $500 + $700 = $1,200

if the sales mix changes, and the sales of product B represent 60% of total sales:

• 80 units of product A, which has a contribution margin per unit of $5
• 120 units of product B, which has a contribution margin per unit of $7

Total contribution margin = $400 + $840 = $1,240