All else constant, as the variable cost per unit increases, the:
A) Contribution margin decreases.
B) Sensitivity to fixed costs decreases.
C) Degree of operating leverage decreases.
D) Operating cash flow increases.
E) Net profit increases.

Question

Quizplus · Accepted Answer

The contribution margin is calculated as sales revenue minus variable costs. If the variable cost per unit increases, the contribution margin per unit decreases because there is less revenue left over after covering the variable costs.

All Else Constant, as the Variable Cost Per Unit Increases