East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?
A)Option A
B)Option B
C)Option C
D)Option D

Question

East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio? 
A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

When both the selling price and variable expenses increase, the contribution margin per unit will remain unchanged as both components increase by the same percentage. However, the contribution margin ratio will decrease because the percentage increase in variable expenses is greater than the percentage increase in selling price. Therefore, the answer is option C.

East Company Manufactures and Sells a Single Product with a Positive