The Selling Price of a Unit Is $20 and the Variable

question 96

Multiple Choice

The selling price of a unit is $20 and the variable product cost per unit is $14. In addition, a sales commission of 5% is paid on each sale. If the variable cost per unit $\textbf{ excluding }$ sales commission increases by 1%, what will be the new contribution margin?

• A)$4.86
• B)$5.10
• C)$5.16
• D)$6.00

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Definitions:

Allowance for Doubtful Accounts

A reserve against the portion of accounts receivable that may not be collectible, reducing the book value to the amount expected to be collected.

Gross Amount

The total or whole amount of something before any deductions, such as taxes or discounts, are made.

Allowance Method

An accounting technique that estimates and sets aside a portion of accounts receivable deemed not collectible.