Final answer:
The unit contribution margin decreases when the variable cost per unit increases, and the selling price stays the same because the margin is the difference between the two values.
Step-by-step explanation:
If a product's variable cost per unit increases but its unit selling price remains constant, then the product's unit contribution margin decreases. Contribution margin is calculated as the selling price per unit minus the variable cost per unit. Therefore, if the variable cost increases, while the selling price remains unchanged, the difference between the two (which is the contribution margin) will be smaller.
For example, if a product's selling price is $50 and the variable cost is $30, the contribution margin is $20 per unit. If the variable cost rises to $35 per unit and the selling price remains at $50, the new contribution margin would be $15 per unit, a decrease from the previous margin. This reduction in contribution margin means that each unit sold contributes less to covering fixed costs and generating profit. This concept is directly linked to profitability and decision-making in relation to production and pricing strategies.