Q-21-14 - Horngren'S Financial And Managerial Accounting

Question

What are the two components that can affect contribution margin? Why is it important to investigate both?

Step-by-Step Solution

Answer

Answer

Sales price per unit and variable cost per unit.

Step 1: Two components that can affect contribution margin

The two main components that can affect contribution margin are sales price per unit and variable cost per unit.

Step 2: Why it is important to investigate both.

It is important to investigate both component because change in either component can bring drastic change in the contribution margin. By investigating the impact of each on total contribution helps the management in maintaining the contribution margin ratio of the company.