ECONOMICS

Detailed explanation-1: -Feedback: Contribution margin = (SP/unit x units sold) – (VC/unit x units sold). If the selling price and the volume remain the same, an increase in contribution margin will result from a decrease in variable cost per unit.

Detailed explanation-2: -Answer and Explanation: The total contribution margin is the excess of sales over total variable costs. So, if sales volume remains the same, the total contribution margin will decrease when the variable expense per unit increases.

Detailed explanation-3: -In order to improve a company’s contribution margin, you either need to reduce variable costs, such as raw material and shipping expenses, or increase the price of your products and services. The lower your contribution margin, the more difficult it is for your business to cover your fixed costs.

Detailed explanation-4: -The contribution margin ratio increases when sales increase. For every $1 increase in sales, profits increase by the contribution margin ratio. For example, if a company’s contribution margin ratio is 25 percent, it is earning roughly 25 cents in profit for every one dollar in sales.

Detailed explanation-5: -If you reduce the variable costs of the product, you increase the product’s contribution margin.