All other things the same, which of the following would be true of the contribution margin and variable expenses of a capital-intensive company with fixed costs and low variable costs as compared to a labour-intensive company with low fixed costs and high variable costs
A)Contribution Margin - HIGHER; Variable Costs - HIGHER
B)Contribution Margin - LOWER; Variable Costs - HIGHER
C)Contribution Margin - HIGHER; Variable Costs - LOWER
D)Contribution Margin - LOWER; Variable Costs - LOWER

Question

Quizplus · Accepted Answer

A capital-intensive company with low variable costs will have a higher contribution margin because most of their costs are fixed, and thus each unit sold contributes more towards covering the fixed costs. Variable costs will be lower since the company relies on capital-intensive equipment rather than labor-intensive processes. On the other hand, a labor-intensive company with high variable costs will have a lower contribution margin since a large portion of their costs are variable and they have lower margins because of their lower selling price. Variable costs will be higher since these costs increase with production levels.

All Other Things the Same, Which of the Following Would