All else being equal, a reduction in selling price will ________.
A) increase contribution margin
B) reduce fixed costs
C) increase variable costs
D) reduce operating income

Question

Quizplus · Accepted Answer

A reduction in selling price will likely decrease revenue and therefore decrease operating income, as fixed costs remain the same and variable costs may increase due to increased production or sales levels. Option A and B are incorrect because they suggest a reduction in selling price would increase contribution margin or reduce fixed costs, which is not likely to happen. Option C may or may not be affected by a reduction in selling price, so it is not a clear choice.

All Else Being Equal, a Reduction in Selling Price Will