All else being equal,what happens to the unit contribution margin and the contribution margin ratio if the sales price per unit increases?
A)Both unit contribution margin and contribution margin ratio increase.
B)Both unit contribution margin and contribution margin ratio decrease.
C)Unit contribution margin increases while contribution margin ratio decreases.
D)Unit contribution margin decreases while contribution margin ratio increases.

Question

Quizplus · Accepted Answer

When the sales price per unit increases, the unit contribution margin (the difference between the sales price and variable cost per unit) will also increase, assuming variable costs remain constant. This means that each unit sold contributes more to covering fixed costs and generating a profit. The contribution margin ratio (contribution margin as a percentage of sales), which is calculated by dividing the total contribution margin by total sales, will also increase because the increase in contribution margin is proportionally larger than the increase in sales price. Therefore, both the unit contribution margin and contribution margin ratio will increase.

All Else Being Equal,what Happens to the Unit Contribution Margin