Question

A $2.00 decrease in a product's variable expense per unit will: Multiple Choice have no effect...

A $2.00 decrease in a product's variable expense per unit will: Multiple Choice

have no effect on the contribution margin ratio.

increases the units sold needed to breakeven.

decrease the units sold needed to earn a target profit.

decrease the contribution margin.

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Homework Answers

Answer #1

Option C. Decrease the unit sold needed to earn a target profit.

Explanation

Contribution margin = (Sales - Variable Cost)

if variable cost decrese Then Contribution margin will increase

For calculating No of unit sold to earn targent profit we will take the Contribution margin as a denominator, therefore denominator will increase hence, No of unit will decrease

formula will be

No of unit to be sold to earn target profit = (Fixed cost + Target Proft ) / Contribution margin per unit

Option A. Is not right because Contribution margin will increase

Option B. Is not right because if variable cost decrease, contribution will increase and unit of break even wil decrease


Option D. is also not right because when variable cost will decrease then Contibution margin will increase

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