In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. A. True

B. False

Question

Krish Hood

Business

15 November, 08:58

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. A. True

B. False

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Answers (1)

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Jayvion Myers · Answer 1

False

Explanation:

The contribution margin will be higher for the company with the highest fixed expenses. Contribution margin = selling price - variable cost

For example:

Company A Company B

sales price per unit $100 $100

total costs per unit $80 $80

variable costs per unit $50 $40

fixed costs per unit $30 $40

contribution margin $50 $60

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. A. TrueB. False

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. A. True

B. False