Log Homes on Spec (LHOS)in British Columbia makes log home kits. Currently, the company does not advertise and has a low selling price for its kits compared to competitors. Next year, the company plans to increase the selling price and begin a wide advertising campaign. Which of the following statements is true?

Question

Quizplus · Accepted Answer

If LHOS sells the same number of units next year with the increased selling price, their contribution margin per unit will increase, resulting in a higher operating leverage. This means that LHOS's profitability will be more sensitive to changes in sales volume. However, we cannot conclude anything about LHOS's breakeven point, profits, or margin of safety based on the information provided.

Log Homes on Spec (LHOS)in British Columbia Makes Log Home