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.

Understand how to prepare a direct labour budget.

Identify the benefits and limitations of budgeting.

Understand the concept and application of responsibility accounting.

Learn the process for calculating desired ending inventory levels.

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Definitions:

Perfectly Elastic Demand

Refers to a market situation where consumers are willing to purchase any quantity of the product at a certain price, but no quantity at any other price.

Very Elastic Demand

A situation where the quantity demanded of a product changes significantly due to changes in its price.

Perfectly Inelastic Demand

A situation where the demand for a product remains constant regardless of changes in its price.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with its demand either being elastic or inelastic.