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Forums › FIA Forums › MA2 Managing Costs and Finance Forums › CVP/ breakeven (question)
E plc operates a marginal costing system. For the forthcoming year, variable costs are budgeted to be 60% of sales value and fixed costs are budgeted to be 30% of sales value.
If E plc increases its selling prices by 10%, and if fixed costs, variable costs per unit and sales volume remain unchanged, the effect on E plc’s contribution would be:
A . a decrease of 6%
B . an increase of 10%
C . an increase of 25%
D . an increase of 100%
I was work it out of this answer, is it correct?
Before;
Sales price 100
Variable cost 60
——-
Contribution 40
——–
After;
Sales price 110
Variable cost 60
———
Contribution 50
———
B .The increase in contribution from 40 to 50 is an increase 10%.
An increase from 40 to 50 is a 25% increase:
40 x 1.25 = 50