If Both the Variable Cost Per Unit and the Selling

question 134

Multiple Choice

If both the variable cost per unit and the selling price per unit decrease, the new contribution margin ratio in relation to the old contribution margin ratio will be:

• A) Lower.
• B) Higher.
• C) Unchanged.
• D) Cannot determine with the information given.

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Definitions:

Cost of Goods Sold

Cost of Goods Sold entails the direct costs attributable to the production of the goods sold by a company, including materials and labor.

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, depreciation on equipment, and factory rent.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a selected activity base such as machine hours or labor hours.

Direct Labor-Hours

The full extent of hours dedicated by employees who are directly integrated into the production process.