If the selling price and the variable cost per unit both increase 10 percent and fixed costs do not change,what is the effect on the contribution margin per unit and the contribution margin ratio?
A)Contribution margin per unit and the contribution margin ratio both remain unchanged.
B)Contribution margin per unit and the contribution margin ratio both increase.
C)Contribution margin per unit increases and the contribution margin ratio decreases.
D)Contribution margin per unit increases and the contribution ratio remains unchanged.

Question

Quizplus · Accepted Answer

When the selling price and the variable cost per unit both increase by 10 percent while fixed costs remain unchanged, the contribution margin per unit increases. This is because a higher selling price generates more revenue, while a higher variable cost reduces the expenses associated with producing one unit. Therefore, the contribution margin per unit increases by the difference between the new selling price and the new variable cost per unit. However, the contribution margin ratio, which is the contribution margin per unit divided by the selling price, remains unchanged since both numerator and denominator increase by the same percentage.

If the Selling Price and the Variable Cost Per Unit