Question

Under the contribution income​ statement, a​ company's contribution margin will​ be: A. Higher if fixed​ SG&A costs decrease. B. Higher if variable​ SG&A costs increase. C. Lower if fixed manufacturing overhead costs decrease. D. Lower if variable manufacturing overhead costs increase.

Answer 1

Correct option is (D)

Explanation:

Contribution is computed as total sales less variable expenses. Contribution margin will increase if sales generated is more than variable expenses and vice-versa.

Fixed expenses are not considered in calculation of contribution. Option A and C are incorrect as fixed expenses are not considered.

Option B is incorrect as contribution margin will not be lower if variable selling, general and administrative (S,G &A) expenses increase.

Therefore, contribution margin will be lower is manufacturing overhead costs increase.