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

Question

Quizplus · Accepted Answer

If both the selling price and variable expenses decrease by 5%, the contribution margin per unit will remain unchanged because the same dollar amount of variable cost will be offset by a lower selling price. However, the contribution margin ratio will decrease because the contribution margin as a percentage of the selling price will be lower. Therefore, the best choice is B, where there is a decrease in the contribution margin ratio but no change in the contribution margin per unit.

Brasher Company Manufactures and Sells a Single Product That Has