Question

If ________, then the contribution margin ratio will increase.

A) Fixed costs increase
B) Variable costs increase
C) Sales volume decreases
D) Sales volume increases

Answer 1

If sales volume increases, then the contribution margin ratio will increase.

Step-by-step explanation:

If sales volume increases, then the contribution margin ratio will increase. The contribution margin ratio is calculated by dividing the contribution margin (which is the difference between sales revenue and variable costs) by the sales revenue. When sales volume increases, it means that the company is selling more units, which leads to higher sales revenue. Since the variable costs per unit remain the same, the contribution margin increases, resulting in a higher contribution margin ratio.