Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?

Question

contestada

Respuesta :

andromache andromache · Answer 1 · 2020-04-13T05:44:18+02:00

Answer:

B. Contribution margin per unit will decrease and contribution margin ratio will not change

Explanation:

The formula to calculate the contribution margin per unit and the contribution margin ratio is given below:

The Contribution margin per unit = Selling price per unit - Variable expense per unit

And, the Contribution margin ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100

Let's say that the sales price per unit is $100

And, the variable expense per unit is $50

Therefore, the contribution margin per unit is $50

The contribution margin ratio = $50 ÷ $100 = 50%

Now if the sale price and the variable expenditure both decline by 5%

Hence, the new sales price per unit is $95

And, the new variable expenditure per unit is $47.5

So, the contribution margin ratio = $47.5 ÷ $95 = 50%

Hence, the correct option is B.