If a company's fixed costs were to increase,the effect on a profit-volume graph would be that the
A)contribution margin line would shift upward parallel to the present line.
B)contribution margin line would shift downward parallel to the present line.
C)slope of the contribution margin line would be more pronounced (steeper).
D)slope of the contribution margin line would be less pronounced (flatter).

Question

Quizplus · Accepted Answer

If fixed costs increase, the contribution margin (the difference between the selling price and variable cost) will remain the same, but total profit will decrease. This will result in a downward shift of the contribution margin line parallel to the original line, as the same amount of profit can now only be achieved at a higher level of sales.

If a Company's Fixed Costs Were to Increase,the Effect on a Profit-Volume