Question

Ramort Company reports the following cost data for its single product. The company regularly sells 20,000 units of its product at a price of $60 per unit. If Ramort doubles its production to 40,000 units while sales remain at the current 20,000-unit level, by how much would the company's contribution margin increase or decrease under variable costing?

Answer 1

It will remain at the same level.

Step-by-step explanation:

the contribution margin will be the same.

Because under variable cost, we only focus on the variable cost to determinate the unit cost. Which doesn't change at unit level.

contribution margin = sales - variable cost.

If we use absorption cost, the cost would decrease, because the fixed cost are distribute over more units. This will increase the income. However this is not the case.