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What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

Short Answer

Expert verified

Answer

There is an inverse relationship between variable cost and contribution margin.

Step by step solution

01

What effect does an increase in sales price have on contribution margin?

If sales price increase the contribution margin will also increase, that means there is a direct relationship between sales price and contribution margin.

02

What effect does an increase in fixed costs have on contribution margin?

Increase in fixed cost does not impact contribution margin in any manner because contribution is the difference of sales price and variable cost.

03

What effect does an increase in variable costs have on contribution margin?

There is an inverse relationship between variable cost and contribution margin. If variable costs increase contribution margin will decrease.

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Most popular questions from this chapter

The budgets of four companies yield the following information:

Company

Beach Lake Mountain Valley

Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)

Variable Costs (a) 60,000 525,000 100,800

Fixed Costs (b) 232,000 260,000 (k)

Operating Income (Loss) 285,600 (e) (g) 31,500

Units Sold 170,000 10,000 (h) (l)

Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Watersโ€™s total fixed costs are $27,500.

S20-17 Calculating breakeven point for two products

For 2019, Wild Waters expects a sales mix of four individual tickets for every one family ticket.

Requirements

1. Compute the new weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

Calculating breakeven point in units, contribution margin given Mackler, Inc. sells a product with a contribution margin of \(50 per unit. Fixed costs are \)8000 per month. How many units must Mackler sell to break even?

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

What is the breakeven point?

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