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The product that Menorah Corp. currently sells, candle operas, has fixed costs of $20,000, a sales price of $10 per candle opera and a variable cost of $4 per candle opera. If the fixed costs were to increase by 8 percent and the sales price and variable costs were to increase by 10 percent, how would the breakeven point in units, the contribution margin per unit, and the contribution margin ratio be affected?
-Contribution margin per unit

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Quizplus · Accepted Answer

The contribution margin per unit is calculated as the sales price per unit minus the variable cost per unit. Initially, the contribution margin is $10 - $4 = $6. After the increase, the sales price becomes $11 (10% increase on $10) and the variable cost becomes $4.40 (10% increase on $4), making the new contribution margin $11 - $4.40 = $6.60. Therefore, the contribution margin per unit increases.

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