Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $6 per unit, then operating profits will:
A)also increase by $6 per unit
B)increase by less than $6 per unit
C)decrease by $6 per unit
D)be indeterminable

Question

Quizplus · Accepted Answer

The contribution margin is the amount left over from sales after variable costs are subtracted. If the contribution margin increased by $6 per unit, then the company is earning an additional $6 in revenue for each unit sold. As a result, operating profits will also increase by $6 per unit, because fixed costs remain constant and every additional unit sold will contribute an extra $6 towards covering those fixed costs. Therefore, the correct answer is A.

Assume Only the Specified Parameters Change in a Cost-Volume-Profit Analysis