The contribution margin ratio always increases when which of the following occurs?
A) Variable expenses as a percentage of sales increase.
B) Variable expenses as a percentage of sales decrease.
C) Break-even point increases.
D) Fixed Costs increase.

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin (sales revenue minus variable expenses) by sales revenue. Therefore, as variable expenses as a percentage of sales decrease, the contribution margin ratio increases. This is because a lower percentage of sales being spent on variable expenses means that more revenue is available to cover fixed expenses and contribute to profit. The other choices (A, C, and D) would have the opposite effect on the contribution margin ratio.

The Contribution Margin Ratio Always Increases When Which of the Following