If the total contribution margin decreases and fixed costs do not change, pretax profit
A) Decreases by an equal amount
B) Increases by an equal amount
C) Does not change
D) Increases by some other amount

Question

Quizplus · Accepted Answer

Contribution margin is the difference between sales revenue and variable costs. If the total contribution margin decreases, it means that either the sales revenue decreased or the variable costs increased. However, fixed costs remain the same regardless of changes in contribution margin. Therefore, if contribution margin decreases, the total profit will decrease by an equal amount due to the fixed costs not changing.

If the Total Contribution Margin Decreases and Fixed Costs Do