The contribution margin ratio increases when
A) fixed costs increase.
B) fixed costs decrease.
C) variable costs as a percentage of sales decrease.
D) variable costs as a percentage of sales increase.

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin (sales revenue minus variable costs) by sales revenue. As variable costs decrease as a percentage of sales (either due to economies of scale, discounts on bulk purchases, or other factors), the numerator of this ratio increases and the denominator remains constant, resulting in a higher contribution margin ratio. Fixed costs are not a factor in this calculation.

The Contribution Margin Ratio Increases When