Herrera Company's Model A generator sells for $569 and Model B sells for $499.The variable cost of Model A is $514 and of Model B is $416.If Herrera 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 $55 ($569 - $514), while Model B has a contribution margin of $83 ($499 - $416). Therefore, the sales force will be motivated to push sales of Model B, which has the higher contribution margin.

Herrera Company's Model a Generator Sells for $569 and Model