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

As the variable cost per unit increases, the contribution margin (selling price per unit minus variable cost per unit) decreases. This is because there is less revenue available after covering the increased variable costs, resulting in less financial contribution to cover fixed costs and generate profit.

All Else Constant, as the Variable Cost Per Unit Increases