Explain the "Income Effect" and "Share Effect" as They Apply

question 88

Essay

Explain the "income effect" and "share effect" as they apply to the calculation of incremental EPS.

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Definitions:

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit.

Fixed Costs

Expenses that remain constant regardless of the amount of production or sales, including rent, wages, and insurance premiums.

Mixed Cost

A cost that contains both fixed and variable components and changes with the level of output but not directly in proportion.

Fixed Cost Element

A component of total costs that does not change with the level of output or activity within a certain range.