Tower Company manufactures and sells a single product with a positive contribution margin.If the selling price and the variable cost per unit both increase 5% and fixed costs do not change,what is the effect on the contribution margin per unit and the contribution margin ratio? $$\begin{array} { | c | c | c | }
\hline & \text { Contrbution margin per unit } & \text { Contribution margin ratio } \
\hline \text { A. } & \text { No change } & \text { No change } \
\hline \text { B. } & \text { Increase } & \text { Increase } \
\hline \text { C. } & \text { Increase } & \text { No change } \
\hline \text { D. } & \text { Increase } & \text { Decrease } \
\hline
\end{array}$$
A) Option A
B) Option B
C) Option C
D) Option D

Question

Tower Company manufactures and sells a single product with a positive contribution margin.If the selling price and the variable cost per unit both increase 5% and fixed costs do not change,what is the effect on the contribution margin per unit and the contribution margin ratio? $$\begin{array} { | c | c | c | } 
\hline & \text { Contrbution margin per unit } & \text { Contribution margin ratio } \
\hline \text { A. } & \text { No change } & \text { No change } \
\hline \text { B. } & \text { Increase } & \text { Increase } \
\hline \text { C. } & \text { Increase } & \text { No change } \
\hline \text { D. } & \text { Increase } & \text { Decrease } \
\hline
\end{array}$$
A) Option A
B) Option B
C) Option C
D) Option D

Quizplus · Accepted Answer

The contribution margin per unit increases because both the selling price and variable cost increase by the same percentage, but the absolute increase in selling price is greater than the increase in variable cost. The contribution margin ratio remains unchanged because the percentage increase in both selling price and variable cost is the same.

Tower Company Manufactures and Sells a Single Product with a Positive