Question

If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:

A. Lower.
B. Higher.
C. Unchanged.
D. Cannot determine with the information given.

Answer 1

If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be unchanged.

Step-by-step explanation:

If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be unchanged. The contribution margin ratio is calculated by dividing the contribution margin (selling price per unit minus variable cost per unit) by the selling price per unit. When both the variable cost per unit and the selling price per unit increase by the same percentage, the contribution margin ratio remains the same because the increase in the numerator is offset by the increase in the denominator.