Question

What will be the effect on the contribution margin ratio if the selling price per unit decreases and variable cost per unit remains the same?

A) It will remain the same.
B) It will decrease.
C) It will increase.
D) It is impossible to determine with the given information.

Answer 1

correct answer is B) It will decrease.

Step-by-step explanation:

we know that contribution margin ratio is express as

contribution margin ratio = ( Sales Revenue - Variable Costs ) ÷ Sales Revenue ...........................1

so here any increase in selling price increase contribution margin

and if the selling price per unit is decreases

and variable cost per unit remain same

contribution margin ratio will decrease

so here correct answer is B) It will decrease.