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 the selling price and variable expenses both decrease by 5%, the contribution margin per unit will remain unchanged, because it is calculated as the difference between selling price and variable expenses per unit. However, the contribution margin ratio will decrease because it is calculated as the contribution margin per unit divided by the selling price. Therefore, option B would be the correct choice as it shows a decrease in the contribution margin ratio.

Brasher Company Manufactures and Sells a Single Product That Has