Question

When unit selling price remains the same and ________, then the contribution margin per unit decreases.

A: fixed costs increase
B: fixed costs decrease
C: variable costs per unit increase
D: variable cost per unit decrease

Answer 1

C: variable costs per unit increase

Step-by-step explanation:

When unit selling price remains the same and variable cost per unit increase, then the contribution margin per unit decreases.

An increase in variable costs when sales unit is same, will lead to decrease in contribution margin.

Contribution margin is calculated by subtracting variable costs from product's revenue and then dividing it by the product's revenue.

Mathematically,

Contribution Margin = (Sales Revenue - Variable Cost) / Sales Revenue.