Arturo Company's Model A generator sells for $456 and Model B sells for $390. The variable cost of Model A is $404 and of Model B is $320. If Arturo Company's sales incentives reward sales of the goods with the highest contribution margin, the sales force will be motivated to push sales of Model A more aggressively than Model B.

Question

Quizplus · Accepted Answer

The contribution margin is calculated as the selling price minus the variable cost. Model A has a contribution margin of $52 ($456 - $404), while Model B has a contribution margin of $70 ($390 - $320). Therefore, the sales force will be more motivated to push sales of Model B, which has the higher contribution margin.

Arturo Company's Model a Generator Sells for $456 and Model