Brasher Company manufactures and sells a single product that has a positive contribution margin.If the selling price and variable costs both decrease by 5% and fixed costs do not change,then what would be 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

Brasher Company manufactures and sells a single product that has a positive contribution margin.If the selling price and variable costs both decrease by 5% and fixed costs do not change,then what would be 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

The contribution margin per unit and the contribution margin ratio will both decrease by 5%. This is because the decrease in selling price and variable costs will reduce the amount of contribution margin per unit, and since the selling price and variable costs are decreasing by the same percentage, the contribution margin ratio will stay the same. Thus, Option B is the best choice.

Brasher Company Manufactures and Sells a Single Product That Has