ECONOMICS

Detailed explanation-1: -Correct answer: Option B. variable expenses as a percentage of sales decrease. Explanation: The contribution margin is used to determine the break-even point, therefore changes in the break-even point cannot impact the contribution margin but the changes in the contribution margin will impact the break-even point.

Detailed explanation-2: -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-3: -If you reduce the variable costs of the product, you increase the product’s contribution margin.

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: -The closer a contribution margin percent, or ratio, is to 100%, the better. The higher the ratio, the more money is available to cover the business’s overhead expenses, or fixed costs.