Question

A company with a higher contribution margin ratio is either more or less sensitive to changes in sales revenue, depending on other factors. likely to have a lower breakeven point. less sensitive to changes in sales revenue. more sensitive to changes in sales revenue.

Answer 1

more sensitive to changes in sales revenue.

Step-by-step explanation:

Contribution margin can be defined as the subtraction of variable cost from the sales price.

Mathematically, it given by the formula;

`Contribution \; margin = sales \; price - variable \;cost`

Variable cost refers to cost which are the same per unit of production but vary directly with level of output.

Generally, a company that has a higher contribution margin ratio is more sensitive to changes in sales revenue because it affects it in the long-run.