Management of a company is evaluating two potential orders. Due to limited capacity only one of these orders can be accepted. Incremental fixed costs are the same for either option. Based on the information in the table below which of the following statements is true?

Question

Quizplus · Accepted Answer

Option B has a higher selling price and a higher contribution margin per unit compared to Option A. However, Option A has a higher contribution margin ratio. 
To determine the highest total contribution margin, we need to calculate the contribution margin for each option by subtracting variable costs from the selling price and then multiplying by the number of units.

Option A: (150*20)-(110*20) = 800
Option B: (170*15)-(130*15) = 600

Therefore, Option A has the highest total contribution margin. Therefore, option D is correct.

Management of a Company Is Evaluating Two Potential Orders