Management of a Company Is Evaluating Two Potential Orders A) Option B Has the Highest Contribution Margin Per Unit

question 136

Multiple Choice

Management of a company is evaluating two potential orders.Due to limited capacity only one of these orders can be accepted.Incremental fixed costs are the same for either option.Based on the information in the table below,which of the following statements is true?
$$\begin{array} { | l | l | l | } \hline & \text { Option A } & \text { Option B } \\\hline \text { Number of units } & 30 & 40 \\\hline \text { Contribution margin ratio } & 35 \% & 45 \% \\\hline \text { Selling price per unit } & \$ 400 & \$ 300 \\\hline\end{array}$$

• A) Option B has the highest contribution margin per unit.
• B) Option A has the highest total contribution margin.
• C) Option B has the lowest contribution margin ratio.
• D) Option B has the highest total contribution margin.
• E) Option A has the highest amount per dollar of sales to contribute to contribution margin and profit.

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Definitions:

Average Operating Assets

The average value of the assets used in day-to-day operations over a certain period, important for determining return on investment and operational efficiency.

Operating Expenses

Costs related to the normal operations of a business, excluding costs of goods sold, such as sales and marketing expenses.

Average Operating Assets

The average value of assets used in the production or operations of a company over a specific period, often used in performance metrics like return on investment.

Sales

Sales pertain to the revenue a company generates through the selling of goods or services to its customers.