Question

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? Contribution Margin Ratio Break-even Point

A. Increase Decrease
B. Decrease Decrease
C. Increase No effect
D. Decrease No effect

Answer 1

A price increase that does not cause a decrease in unit sales would result in an increased contribution margin ratio and a decreased break-even point for Moss Feet Shoe Corporation.

Step-by-step explanation:

The effect of a price increase on the Contribution Margin Ratio and Break-even Point for Moss Feet Shoe Corporation can be determined using the concept of elasticity of demand. If the price increase does not cause a decrease in unit sales, it implies that the demand for the product is relatively inelastic. In this case, the contribution margin ratio would increase, indicating a higher proportion of each sale contributing to covering fixed costs and generating profit. However, the break-even point would generally decrease as the increase in price leads to higher revenue per unit and a reduced number of units needed to cover fixed costs.