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1 February, 04:43

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will: A) decrease the degree of operating leverage. B) decrease the contribution margin. C) have no effect on the break-even volume. D) have no effect on the contribution margin ratio.

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  1. 1 February, 07:29
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    A) decrease the degree of operating leverage

    Explanation:

    The contribution margin is

    sales - variable:

    (sales + 2) - (variable + 2) = sales - variable

    no change

    so B is FALSE

    as the contribution margin ratio is:

    (sales - variable) / sales

    this increase will impact the contribution margin ratio.

    (sales + 2 - (variable + 2)) / (sales + 2)

    (sales - variable) / (sales + 2)

    the CMR will decrease.

    so D is FALSE

    the break-even on sales will increase as the CMR decreases

    more units are needed to fullfil the fixed cost

    so C is FALSE

    A) decrease the degree of operating leverage

    ΔEBIT / Δrevenue

    sales increase and the variable cost increases

    a change in the sales revenue will not be as efficient as it was before the degree of leverage will decrease.
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Home » Business » A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will: A) decrease the degree of operating leverage. B) decrease the contribution margin.
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