A company with a higher contribution margin ratio is
A) more sensitive to changes in sales revenue.
B) less sensitive to changes in sales revenue.
C) either more or less sensitive to changes in sales revenue, depending on other factors.
D) likely to have a lower breakeven point.

Question

Quizplus · Accepted Answer

A company with a higher contribution margin ratio means that a larger portion of each sale contributes towards covering fixed costs and generating profit. This also means that a larger portion of each sale is affected by changes in sales revenue, making the company more sensitive to changes in sales. Therefore, option A is the correct answer.

A Company with a Higher Contribution Margin Ratio Is