Question

In a sales mix situation, at any level of units sold, net income will be higher if:

a. more lower contribution margin units are sold than higher contribution margin units.
b. more higher contribution margin units are sold than lower contribution margin units.
c. weighted-average unit contribution margin decreases.
d. more fixed expenses are incurred.

Answer 1

b. more higher contribution margin units are sold than lower contribution margin units.

Step-by-step explanation:

Contribution margin is that percentage of sales revenue which is received after deducting the variable cost of the product. This is basically covering fixed cost.

As soon as fixed cost is covered by contributing margin the income starts arising.

Therefore, the company shall sale those which have higher contribution margin, as this will cover fixed cost more fast.

Thus, sales of goods with high contribution margin in a sales mix assures high net income.