Question

When sales increase by 9%, which of the following should also increase by 9% in a merchandising company?(A) Variable cost(B) Fixed cost(C) Gross margin(D) Contribution margin(E) Net operating income

Answer 1

The answer to the student's question is that Variable cost should increase by 9% when sales increase by 9% in a merchandising company because variable costs move in direct proportion to sales volume.

Step-by-step explanation:

When sales increase by 9% in a merchandising company, option (A) Variable cost should also increase by approximately 9%. Variable costs are directly tied to the level of production or sales volume, so they vary with changes in sales. When more products are sold, more resources are consumed to produce these products, which results in an increase in variable costs. Fixed costs (B) do not change with sales volume, so they would remain constant. Gross margin (C) is the difference between sales and the cost of goods sold, which includes variable costs, and could increase by a different percentage if the cost structure or pricing changes. The Contribution margin (D) is sales minus variable costs, and it would increase but not necessarily at the same rate as sales since it depends on the contribution margin ratio. Lastly, Net operating income (E) is affected by both variable and fixed costs, and it would only increase by 9% if all other factors remain constant, which is an oversimplification.

Answer 2

(A) Variable cost

(C) Gross margin

D) Contribution margin

Step-by-step explanation:

mathematically:

Gross Margin = Sales – cost of goods sold

for constant cost of good sold, an increase in sales alternately increases the gross margin.

and

Contribution Margin = Sales – Variable costs

as sales increase, the variable cost has to increase so as well the contribution margin has to increase.